Week 16 (11/17/2013)
1. In
your own words and using referenced quotes describe the difference between
organic growth, merger & acquisition and strategic alliance.
Organic growth:
The growth rate
that a company can achieve by increasing output and enhancing sales. This
excludes any profits or growth acquired from takeovers, acquisitions or
mergers. Takeovers, acquisitions and mergers do not bring about profits
generated within the company, and are therefore not considered
organic. (www.investopedia.com)
Merger and
Acquisition:
Mergers and acquisitions (M&A) is the area of corporate
finances, management and strategy dealing with purchasing and/or joining with
other companies. In a merger, two organizations join forces to become a new
business, usually with a new name. Because the companies involved are typically
of similar size and stature, the term "merger of equals" is sometimes
used.
In an acquisition, on the other hand, one business buys a
second and generally smaller company which may be absorbed into the parent
organization or run as a subsidiary. A company under consideration by
another organization for a merger or acquisition is sometimes referred to as
the target. (whatis.techtarget.com)
Strategic
Alliance:
2. Give
an example of a company that has grown through a) organic growth, b) merger or
acquisition and c) strategic alliance
Organic
Growth:
This BBC news article flags up that
Jury’s has secured additional finance to support their expansion programme.
These are challenging times for the UK hotel industry as recession has affected
room occupancy rates from business and household customers. But
Jury’s Inn has
instigated an ambitious programme of new hotels - a strategy of internal or
organic growth. urys said it would look at new
developments in key markets such as London. It has already opened five new
hotels across the UK this year.
New hotels have opened in Sheffield, Watford, Exeter,
Swindon and Derby. Another hotel is due to open in Aberdeen later this year,
with more to follow next year in Portsmouth, Glasgow, Newcastle and Bradford. A
new hotel in Prague is due to open in September 2009. Jury’s Inn has
traditionally placed itself in the affordable business hotel market
segment (www.tutor2u.net)
Merger and acquisition:
Sprint and Nextel Communications
In August 2005, Sprint acquired a
majority stake in Nextel Communications in a $35 billion stock purchase. The
two combined to become the third largest telecommunications provider, behind
AT&T (NYSE:T)
and Verizon (NYSE:VZ). Prior to the merger, Sprint catered to the traditional
consumer market, providing long-distance and local phone connections and
wireless offerings. Nextel had a strong following from businesses, infrastructure
employees and the transportation and logistics markets, primarily due to the
press-and-talk features of its phones. By gaining access to each other's
customer bases, both companies hoped to grow by cross-selling their product and
service offerings
Strategic
Alliance:
Many
mobile brands including Samsung have created a strategic alliance with Google
for the purpose of android operating system.
3. Briefly
discuss the merger between Britvic and AG Barr. What advice would you give to
the new Board?
The combination
of these two companies explains that they went for the process of merger as the
management from both companies will be there for future operation. This process
of merger and acquisition is very profitable for the both company as they will
save 35 million pound yearly and will generate 23 percent of combined operating
profit.
Some advices to
the new board are:
§ They should bring new sovereign brand in the market.
§ They should come up with planned, creative way of
endorsing product.
§ They should maintain the effective and prompt
communication with board members.
§ They should give extensive importance on research and
development.
Case study
1) Evaluate the case for the merger
I. What
are the positives and benefits? What should work well?
Some positives and benefits of mergers
are:
§ Annual cost savings of £35 million
§ Operating profit of 23 percent
§ Relationship with Pepsi
§ Chance to sell drinks to Britvic's customers
§ After valuation Britvic's share price might increase
With formation of new company they can emerge as a new
competitor to other soft drink producing companies.
II. What
are the negatives and potential risks? What problems might occur?
· Barr and Britvic have their own
management styles and corporate culture that have been in practice for years.
Merging these firms also means merging their cultures, values and way or
working which may result to some sort of conflicts in the future. In addition
to this, Britvic having the debt of £600 million may not be preferred by
the executives and top management of Barr to take any kind of the strategic
decision on their own without the evaluation and approval of Barr. This too may
cause some sort of management problem and conflicts regarding the decision
making authority.
· The shareholders of Barr who were
earning high return on investments may not be earning the same amount after
merging which may lead to their dissatisfaction.
· The downsizing of the companies in
terms of employees is another negative aspect of the merge of these companies
because though having lesser number of employees may be beneficial to the
company, settling down the issues related to the employees who will be fired
can be very costly in terms of both monetary aspects and the company image.
III.
What advice would you give the newly formed Board?
Some advices to
the new board are:
§ They should bring new sovereign brand in the market.
§ They should come up with planned, creative way of
endorsing product.
§ They should maintain the effective and prompt
communication with board members.
§ They should give extensive importance on research and
development.
References:
(n.d.).
Retrieved from www.investopedia.com:
http://www.investopedia.com/terms/o/organicgrowth.asp
(n.d.).
Retrieved from whatis.techtarget.com:
http://whatis.techtarget.com/definition/mergers-and-acquisitions-MA
(n.d.).
Retrieved from www.businessdictionary.com:
http://www.businessdictionary.com/definition/strategic-alliance.html
