strat 390

corporate strategy

when it improves the average competitiveness of the individual business units, it helps the business units create and capture more value

across several businesses - in which markets shoudl we compete in today and in the future

how does ownership of buysiness ensure comp today and in the future

how to organize to maximize

corp advatnge- able to capture more value than they would be able otherwise

scope of firm

horizontal scope - how wide the range of prodcuts does the firm supply- related vs unrelated

veritical scope - what range of vetically linked acitivties does the firm encompass - upstream vs downstream

global scope - what is the geographical spread of the firms activities - local vs global

how diversificaiton can create value

portfolio managemnet / resource allocation - informational advantage over the market / outisde investors

restructuring- improve performance of individual businesses without exploting the linkages between them - add value in a way that business couldnt do on their own

synergies - improve the performance of the porfolio by exploiting linkages across businesses

comp advatnage vs corp advatnage

- attractive test vs cost of entry rest

- better off test and ownership ttest

- exsits cost benefits through economies of scope or rev through cross selling to create syngery across the business

- less costly for managers to realize these economies of scope than for outside equity holders on their own.

the better off test

cross selling- diversifciation can create value by increasing willingness to pay

economies of scope - shared activites and other sources of scope economies can help with cost reductions

why would we want to add the new business or expand, or scope reduction does it stilmake sense to own the exisitng business

the comapny needs to be better off with the new busienss- new busines needs to he;lp the company create value

ownership test

do you have to own business to create value from it

contract or better to transact with an existing business seperately

cost of ownership vs contracting

the busienes have to perfrom better nder common managmenet thant hey could perform operating as independent stand alone enterprises

cost of owning multiple business

cost of hq, faciltiies, and personnel- c suite

cost of coordination- trying to coordinate takes time

cost of distraction- diversified companies often waste resoruces on doomed prodcuts - cow tags

cost of social comparison- employees working on dif functions/ products are often treated differently

econ of scale and scope

scope- when using a resource across multiple activties uses less of that resource than when the activiteds are carried out independently. similar to scale

sclae relates to cost economies from increaseing a single output, scope are cost economies from increasing output of multiple products

horizontal scope - related diversification

how wide a range of products o ffirm supplies

enables a frim to benefit from ( leverage and exploit) horizontal relationships across dif businesses

greater revenues from cross selling - demand side economies of scope

reduce costs by exploiting supply side economies of scope

expolit economies of scope using the firms valur drivers resutling in increased wtp or redcued costs to pay thrpouhg commmon tangible, intabngile, or org cap

uses better off test to see if value drivers will enable corp advatnage

better off when shared resources activitate value drivers in the new busines

- name hte resrouce, does it transfer and recreatre power or dilute it

value drivers of comp advantage

scale economies - reduction of unit costs as volume increases- tnagible and org cap

network economies - value grows iwth user base- intangible

counterpositioning - new/ unqiue business - model - org cap

cornered resoruce - exclsuive access to ley inputs - tangible or intangile

branding - durable consumer belief in value - intangile

switching cost - high cost for users to leave- intangible

proccess expertise- embedded organizational activites delivering superior output - org cap

give comp advantage for those who have exclusive access adn barriers that prevetn comp for aquriring them

resource based comp advantage

tangible- physical and financial assets that can be seen and quantified- cash, raw mat, infrastrucure

intabigle -non physical assets with econ value- brand rep, patents, trade secrets, customer relationship, org culture- insivble to comp, diffcult to value and embedded in firm history

organizational capabilties - ability to deploy and coordinate resources to achieve outcomes, embedded in routines, proccesses- supply chian, management, procut devlopment,, strategic innnovation

VRIO- vaulable, rare, inimitable and organizationlly relevant

successful diversifictiation

succeeds when excess resources and capabilities activate multiple drivers of value simultaneously creating economies of scope and corp advantage

netflix

resources- tangible ( infrastrcure, capavity), org ( operational systems)

value drivers- scale economies

source of corop advantage- spread fixed costs across new busineses

unrelated horizontal diversification

a firm entering a business that has little interaction with ohter businesses of a firm

bad rationales

- risk reduction - that they can diversify their portfolio to reduce risk why not mutual fund

attractive industry - firm needs comp advatnage in the new attractive market

can lead to conglomorates - favoring the manager adn not theh shareholder value

vertical integration

firms ownership and control of multiple vertical stages in the supply of a product

make desicion or buy deison from the market through outsourcing

downstream or forward integration

moving ownership of activites forward int eh value chain - closer to the end consumer

upward or backward integration

moving ownership of activiresbackward along the value chain towards the inputs

make vs buy

formalization vs degree of commitment

buiy is low on both

make is high on both

efficient market hypothesis

market more efficent than individual firm becuase info is rapidly avialbe

information aggregation - gets info from many participants, leading to a more accurate relfection of overall value compared to a simgle frim perspective

efficiency - pressured to operate efficiently to stay competetiive which contributes to overall market efficiency - econ of scale

price discovery - market rices adjust quickly to new info, making it hard or any single entity to consistently ecploit market ineffeiciens

coase therom

transaction costs- cost of negotaiting, monitoring and enforcing a contract

- cost of using the market, not productive activities but are engaged in only as a conseuqnece of the need to coordinate exchange among the parties

- search, barganing, negotiating, haggling cost

- coordination/ admin costs for adminsitrering activiies within the hierachry

t cost rgeater than coordination- verical intgration

if t cost less than coordiantion market

markets are efficient but costly to use

transaction costs from 3 behaviors

opportunism - when assymetric info, people take advatnage of dishonesty

bounded rationality - limited memeroy and desciion makign ability, more info than you can handle

uncertainty - transaction or the environment such that it is diffuclt to measure performance

transaction costs are higher when

asset specifity - transaction specfic investments are very difficult in a market relationship, investment changed bargaining power dynamics

- value is greater in this transction than others - more for vertical integration if high cuz value is lost if utizlied outside certain context

beed for significant change- cost of managing the info with third parties is higher than within the firm- need for close coordination

admin costs in vertical integration

low powered incentives- in market u have skin in the game, in vi they are lowered because agents are more protected, shirking, internal suppleris know they have guarentted supply, less eposure to market can lower learning

coordiantion costs

loss of flexability --when environment is uncertain, the market has greater flexability and can have rapid response to a system compared to vi since integration can slow it down

compounding risks - when environment is highly uncertain or changing, business risk compounds for a vertically integrated firm

scale may not reach the same in hourse

trade off of make or buy

make- easier to control, coordinate and better shared knowledge

- high admin costs and low powered incentives

buy- high powered incentives, more flexbiliaty, high search and info costs and bargaining costs

global scope

gloval strategy - standardization

local responsivness - localization

can internationalize for access to larger market and to have more access to resources and capabilties from cheaper labor, raw materials, and capabilties to learn from an indsutry

can firm replicate its home advtange abroad- larger markets, cheaper inputs, new competencies

country, comp, corp

better off- is advtngr firm spriifc or country specific

cage and aa informs attractiverss. cost of entry and better off

costs of global scope

liability of foreigness- added costs form doing bus in foreign environment and cooridnating across geopgraphic distances

loss of rep- loss rep wehn they do not enforce working conditions or other values

loss of ip- enfrocment can vary

where to enter

1. understand where to enter - pestel or cage

poltical, ecnomic, social, tech, environment, legal

cutlrual - dif lang, etc. - linguistca and cutlrualt content more affected

admin - absece of shared poltical or monetary assocaition, poltical hositlity, weak legal or financial instituions- gov systems

geographic - lack of common border, or transportation or communication links- physical remoteness - low weight to volume or value to volume and long shippign times

economic - differenct consumer incomes, resources, or info - luxry goods and labor intesnvie prodcuts like clothing

advantages of global context

country - input access- raw materials, labor- regulations like tax and subsidies

comp advantage- increase wtp and cost reduction

corp advantage- scale and scope, propeirtary assets ( Ip assets), customer needs/preferences, comp

differences across countries create advatages for some coutries and firms

global value creation aaa framework

adaption - local responsiveness - boost revenue and market share through max local relevance - when the market for produts is not hihgly glboal but can increase costs but also revenue

aggreation- econ os scale - selling in other countries can increase total number of units produced- leverages a hihgly global makret for prodcuts

artitrage - exploiting differences - loating overseas to exploit lower prices of inpouots in other countries - leverages the globalization of prodcution

can be pursued in dif parts of the value chain

ince htey know the challenges than they use this to see the value prop of this

organizing the firm- the problem

specializtion increases productive but

-coordination- effort to get people to work together, specailized efforts have to be integrated

cooperation- peoples goals dont automatically line up

have dif specialist, knowledge, preferences becasue in the firm u cannot cooridnate speiclsit through prices like in the market

good org design

influences behavior- so people do what org needs - reporting structue shapes what people work on - sets incentives and that drives bheavior

routes info- so descion makers have what they need - ocean of info - gets the right info out

allocated descion rights - to the people who will use them well - put authroity where it will be used well with whoever holds the relevant knowledge and bears the consequences - push desicons local if relevatn

what is org structure

describes how org allocates, coordinates, and supervises tasks to acheice its goals - answer to specializtion, coordination and cooperation

org chart does nto ewqula power,. jsut shows who reports to whom and that can change without the chart changing

forms of org structure

simple- owner/manager- employees- start up s

functional- grouped by activty liek r and d, marketing, sales, etc. - small or singel product/ dominant business - specializqtion

divisional- grouped by output or product and geogrpahy - meidum sized and or multi product- efficiency

org structure tradeoff

where they sit between responsiveness and efficeincy

geography/ responsiveness- tailored to local markets

by function/ efficinecy- centralized, economies of scale

matrix/ balance - cross reporting to get both

matrix structure

- captres both econ of sclae and local responsivness

- dual authority, conflict, and poltical complexity

unilever- uses a matrix where emplyess report to both the functional managers, and product mangers creating cross functional teams

mckinsey 7 s framework

soft

skills

staff

style

shared valueds

hard

startegy

strcutreu

system

if you moe one s then the other must move as well

fit beats any single lever- strucuter, incentives, control, adn culture must be coherent

strucutre follwos strat with a lag- and the frction lives isn that lag

centralizing reshapes who holds power - it goes beyond jsut an org chatr change

glocal tradeoff

local responsiveness- adpat to each market, tastes, laws, channels

global standardization- one offer everywehre, scale and lowest cost

most firms lice inbetween

where to enter- cage- cultural, admin, geo, econ

what strat- aaa- abrtiage, adaptaiton, aggreation to manage that distance

now modes od entry

modes of entry

exporting- loweset commitment

licensing and franchsing

equity alliances- joitn venture

aquisition- highest control

exporting

produce at home- sell abraod

oldest and loweset commitment - test if market is reayd

- low investment and easy to reverse

little local contorl expored to tariffs and exchagne rates

strategic alliacnes

licnesing- grant rights to a local frm for a fee/ royalty

franchsining - licensing a whole business format- brand, proccess and standards

joint ventures- shared ownership of a new local entity

local control and capital in exchange for sharing porfits and know how

wholly owned subsidary

aquisition- buy an estabvlijsed local player- fast but integration risk

greenfield- build from scartch- full control- slower and costlier

theh entry tradeoff

more control and comitment- capture more value and protect IP, learn the market directly, but higher costs nad harder to reverse

less commitment and more flexabikity- speed and low capital, local partners bring market knowledge, but shared margin and weaker control

oppsoing pressure of cost reduction- standardize and scale to drive odwn costs and the integration pressure vs. local responsivenes- tailo to each market - the localizaiton pressure

intehration and repsonsivebness frameowrk

pressure for cost reduction vs pressure for local repsoivness

glocbal standardization, transnational, international strategy, multidomestic

international strat

low cost pressure and low responsivness

- leveage home core comp

sell largely the same product lightly chagned

often the first dtep, relies on exporting/licesning

watch for exposure to exchagne rates and ip theft, little local fit

mutlidomestic strategy

low cost pressure and high responsiveness

maximize local and cna be percieved as local

autonomous coutnry units- common infood and drink

reduced scale and learning across regions

can face integration pressure

global standardization

high cost and low responsivenss

gloval divisinof labot at a lower cost

best of class capabitlies wherever they sit

business level strat- cost leadership

wathc for race to the bottom as wages rise, no local fit

transnational strategy

high cost pressure and high respojnsivess

think global act local - both at once

run through a gloval matrix structure

echoes aaa: aggregation + adaption toegher

the maxtrix is cosrly and hard to run- high failure rate

global strategy holsitically

internationl - home centric; simple/functional core - adapt little; leverages the home base - leverage core competiieance but risk of exchagne rate and IP exposure

multidomestic- autonomous geographic divisions- adaption- hihgest local responsivenss- risk of duplication; little scale and learning

global standardization- centralized netowrk; lowest cost, aggregatioj ( arbitrage) - scale & location economies- no local fit; race to the bottom

transnational- global matrix - adaptation and aggrehation at once- scale responviess learning- costly matrix- high failure rate

choosign corp and glocal scope

Corporate Strategy → Choices a corporation makes about how to configure and coordinate activities across multiple markets/businesses to create value. Different from competitive strategy, which focuses on one business/market.

Corporate Scope → The markets/industries in which a corporation chooses to maintain a competitive presence.

Corporate Advantage → When being part of the corporation gives individual business units greater competitive advantage than they could achieve independently.

Better-Off Test → Does being present in another business/market increase the total competitive advantage of the businesses compared with operating separately?

Ownership Test → Does owning the business create more competitive advantage than alternatives such as a contract, alliance, licensing agreement, or joint venture?

Scale = make MORE of one thing → lower cost per unit

Scope = make DIFFERENT things together → lower total cost

Fundamental Paradox of Information → A buyer cannot know how valuable information is until the information is revealed, but once it is revealed, the buyer already has the information and may no longer need to pay for it. ChoosingCorporateAndGlobalScope...

This creates a market failure → ownership can solve the problem by allowing knowledge to move internally.

Horizontal diversificationEconomies of scope + cross-sellingVertical integrationRelationship-specific investments + downstream free-ridingGlobal expansionFactor cost differences + economies of scale + exploiting knowledge

amgen

Should Amgen expand its corporate scope from only developing innovative biologics to also developing biosimilars? CEO Kevin Sharer focused on three questions: Is biosimilars an attractive business? Can Amgen succeed in it? How would entry affect Amgen's organization?

small-molecule generics can essentially replicate the original molecule exactly. Biologics are so complex that differences in cell lines and manufacturing processes can create differences in the final product, potentially affecting safety or efficacy

Many major biologics were approaching patent expiration, while regulators wanted biosimilars to increase competition and reduce healthcare costs. AmgenIncPursuingInnovationAndIm...

Amgen is good at RD etc. so this could help because they coudl reuse their capabilite to build rather than from scracth and they had unsued manufacturing capacity

- could pass better off test and potentail cross selljing benfits from existing proccessess and relaitonsjops

attracite beause lower rd costs, higher probabiluty of approval, lower launch costsbut risks of cannicaliton, brand conflicts, culure, and opp cost

an innovator entering biosilimars, its manufacturing and regulatory skills tranfer, a high regulatroy bar ( PESTEL) leeps the business attractice, weight teh risk of doing and not doing - has to do with corportate advatnage - better off or ownership

vertical integration when they should make or buy

vertical integration= owning multiple stages of the value chain

VI is MORE attractive when: high transaction-specific investments, high coordination needs, and contracts are uncertain/incomplete.

VI is LESS attractive when: many suppliers exist, stages need different capabilities/scales, flexibility & incentives matter, demand is unpredictable, or integration compounds risk, les

Benefits of VI

Technical economies, lower transaction costs, and better coordination, transaction specific investment- whre an invesetment has significnatly less value if used for another cusotmer or supplier

Costs of VI

Administrative costs, weaker incentives, reduced flexibility, capability differences, and compounded risk,

integrate when When the benefits of internal coordination and avoiding transaction costs outweigh the costs of ownership.

VERTICALLY INTEGRATE when: Coordination + transaction costs + specialized investments are HIGH.

OUTSOURCE when: Outside suppliers are plentiful + specialized capabilities matter + flexibility/incentives matter.

delta case

Delta bought a refinery to reduce exposure to volatile jet-fuel prices and supply disruptions

Benefits: lower transaction/supplier dependence, protection from high refining margins ("crack spread"), more control over fuel supply

Costs: high capital/maintenance costs, operational & environmental risk, and losses when fuel demand/prices fall

VI can act as a hedge when an important input is volatile, but ownership creates additional costs and risks.

In 2022, Delta said the refinery saved it about $785M when fuel prices surged.

Nvidia

Nvidia dominates AI computing through its high-performance GPUs + CUDA software ecosystem, which creates customer lock-in and makes switching to competitors difficult. Its AI growth made data centers its largest business

how far upstrema or downstream shoudl they integrate

Upstream: Nvidia designs chips but outsources manufacturing mainly to TSMC. This avoids the enormous cost of owning fabs, but creates dependence on one supplier and exposes Nvidia to capacity, pricing, and geopolitical risk in Taiwan.

Downstream: Nvidia is moving beyond chips into complete AI systems (DGX) and cloud services (DGX Cloud). This lets it capture more of the value chain and build direct relationships with end customers, but puts Nvidia in competition with major customers/partners like Microsoft, Amazon, Dell, and HP

Big risk: Those customers are already developing their own AI chips to reduce dependence on Nvidia, so further integration could accelerate that shift.

Key takeaway: Nvidia must balance the control + value capture benefits of vertical integration against supplier dependence and the risk of competing with/alienating its own customers

excerpt on global strateggy

Why go global? Firms expand to (1) access larger markets, (2) access lower-cost inputs, and (3) develop new competencies. Main risks are liability of foreignness, reputation loss, and intellectual-property loss.

Where? → CAGE Distance Framework: Evaluate distance between home & foreign markets: Cultural = language, norms, values Administrative = laws, politics, institutions Geographic = physical distance/infrastructure Economic = income, resources, costs → Greater CAGE distance generally = greater cost/risk of entering.

How? → Entry modes: As you move from exporting → licensing/franchising → alliances/JVs → acquisition/greenfield, the firm's investment and control increase.

4 Global Strategies: determined by pressures for cost reduction vs. local responsiveness:

International: Low cost pressure + low local responsiveness

Multidomestic: High local responsiveness + low cost pressure

Global-standardization: High cost pressure + low local responsiveness

Transnational: High cost pressure + high local responsiveness → tries to achieve both simultaneously.

Key takeaway: Global expansion creates value when the benefits of new markets, cheaper inputs, scale, and learning outweigh the costs of operating across different countries

nfl case

Grow internationally to access new fans, media rights, sponsorships, merchandise sales, and talent. Despite being the most valuable U.S. sports league, only 2% of NFL broadcasting revenue was international, versus 21% for the NBA and 42% for the NHL

why difficult - Cultural distance: Football is uniquely American, has complicated rules, and foreign markets lack established team loyalties/rivalries.

Talent/infrastructure: Football requires expensive infrastructure, coaching, equipment, and full teams → harder to develop globally than basketball/soccer

Product limitations: Only 17 games/season, so international games sacrifice scarce U.S. home games + create major travel/fatigue costs.

Past failures: NFL Europe lost about $20M/year and failed to consistently develop NFL-level talent.

The NFL has huge potential global demand, but unlike the NBA/MLB, it can't simply export its U.S. model. Successful globalization requires building local fandom + talent/infrastructure while managing cultural and geographic distance

aaa framework

how to create value glbally

1. Adaptation = adjust to differences Change products/business models to fit local needs & preferences → increases local responsiveness. Example: McDonald's adapted its Indian menu to local tastes/religious preferences; ~70% of the menu was designed for India.

2. Aggregation = exploit similarities Standardize/group activities across countries to achieve economies of scale & scope while maintaining some local responsiveness. Example: Whirlpool created global platforms/common parts while allowing regional product differences.

3. Arbitrage = exploit differences Locate activities where countries have advantages in costs, labor, resources, taxes, knowledge, etc. → essentially "buy low in one market, sell high in another." Outsourcing/offshoring are common examples

nestle and kitkat

Nestlé transformed KitKat from a standard Western chocolate bar into a product with specific cultural meaning in Japan.

Japan had a crowded, slow-growing chocolate market with different consumer preferences—less sweet chocolate, smaller portions, and different gift-giving traditions.

Nestlé targeted students stressed about entrance exams and discovered that "KitKat" sounded like "kitto katsu," meaning "surely win." It repositioned KitKat as a good-luck charm for students, connecting it to Japanese traditions like omamori (good-luck charms) and sakura/cherry blossoms (success)

KitKat became a symbol for wishing someone success rather than just chocolate. Market share rose from 5.6% → 6.1% after the campaign, and KitKat sales increased 150% from 2002-2007.

Adaptation creates value by keeping the core product/brand but changing its positioning, meaning, packaging, or marketing to fit local culture. KitKat succeeded because Nestlé understood Japanese consumers instead of simply copying its global strategy

7-s framework

he 7-S Framework says organizational success/change depends on 7 interconnected factors—changing one can affect all the others. The main idea is that structure alone does not determine how well an organization work

Strategy → Plan for achieving competitive advantage/goalsStructure → How responsibilities & authority are organizedSystems → Processes/procedures used to run the businessStyle → Leadership & management behavior/cultureStaff → People and how they are developed/motivatedSkills → Organization's key capabilities/what it does wellSuperordinate Goals (Shared Values) → Core values/purpose that guide the organization

Hard S's: Strategy, Structure, Systems → easier to formally identify/changeSoft S's: Style, Staff, Skills, Shared Values → less tangible but equally important.

Successful organizational change requires alignment among all 7 S's

Pernod Ricard

Pernod Ricard wanted to make data/AI a competitive advantage by replacing intuition-heavy decisions with more data-driven sales and marketing decisions. It developed its digital tools in-house to retain control, protect strategic information, and build internal capabilities

D-STAR: Uses data/AI to tell sales reps which stores to visit + what actions to take to increase sales.

Matrix: Uses data/AI to determine how marketing budgets should be allocated across brands/channels.

Main challenge = adoption, not just technology. Employees resisted because the tools challenged their experience, intuition, autonomy, and existing ways of working. Matrix had more resistance because marketers were emotionally attached to brands and creative decision-making.

How Pernod addressed it: Training/education, management support, incentives, employee involvement, integrating tools into normal workflows, and adapting implementation to each market.

Results: KDPs increased sales by 1.5-4.5% depending on the market and improved marketing efficiency by up to 15%

Key takeaway: Digital transformation requires organizational transformation. Technology alone isn't enough—strategy, structure, systems, skills, staff, and culture must change together for new technology to create competitive advantage.

business managment but does i t add up

The article argues that many acquisitions destroy rather than create value because the acquirer usually pays a premium for the target, meaning the combined company must perform significantly better just for the acquirer to break even.

1. Integration is costless → FALSEMergers create culture clashes, fear/uncertainty, lower employee commitment, and integration costs

2. "Synergies" will automatically create value → FALSEManagers often assume combining businesses will create cost savings or customer value, but customers may not actually value the combination.

3. Buying another company will improve the acquirer's performance → NOT necessarilyIf a company can't perform exceptionally in its existing operations, acquiring a business it understands less well is unlikely to fix the problem.

An acquisition creates value only if the performance improvements/synergies are large enough to exceed the acquisition premium + integration costs. Companies should not acquire simply because growth or "synergies" sound attractive.

microsoft

Microsoft offered $68.7B for Activision Blizzard to strengthen its gaming position and support its shift toward cloud-based subscription gaming + the metaverse. Activision brought major IP like Call of Duty, World of Warcraft, and Candy Crush, plus nearly 400M monthly players.

Game Pass: Add Activision's popular games to make Microsoft's subscription more attractive → Microsoft's goal was essentially the "Netflix of gaming."

Cloud gaming: Combine Activision's content with Microsoft's existing Azure/cloud infrastructure, reducing reliance on Xbox hardware alone.

Mobile: Candy Crush/King gave Microsoft a strong position in mobile gaming, where it was previously weak.

Metaverse: Activision had experience creating immersive virtual worlds where users play, socialize, and purchase digital goods.

Competitive position: Could help Microsoft compete against Sony and other tech/gaming companies.

Major risks: $68.7B price, regulatory/antitrust concerns, possible backlash over making games exclusive, and Activision's serious workplace culture/ESG problems, which Microsoft would have to address.

Key takeaway: The acquisition makes strategic sense if Microsoft can create enough synergies/economies of scope by combining Activision's content + players with Microsoft's Game Pass + cloud capabilities to justify the acquisition price and integration risks

mergers

the firm purchases a fraction of each others assets

usually not unfriendly - mergers of equals meaning the companies are roughly the same size

one of the parent firms usually emerges as the dominant management

voluntary deal between independent firms to form one new legal entity

the particiapting firms purchase a fraction of each other's assets

acquisitions

firm biys another firms stock using any mixof cash debt and equity

acquriing firms takes a controlling majority or compelte sare in target firm

can be friendly or hostile

mostly through an open tender by offering a premium over the current stock price of teh target firm

whom m and a create value

aqcuirer - on average the value is destroyed - negatie value

target- on average value created is up 25 percent

on average, m&a activity creates value but target firm captures it

why lack of value capture

premium paid- for the deal to break even the acquired company must now do better than what the market had already priced into the shares

faulty assumptions - melding business is costless, syngeries will ride to the rescue, the target will improve operational weakness of hte acqurier

social proof

social proof effect

one means we use to determine what is correct is to find out what the other think is corret

applies especially to what consitutes correct behvaior

iin times of uncertainty, the natural tendenacy is to look around at the actions of others for clues

motivation for m and a

- to ensure survivial- m and a activity amon banks during financial crisis

- free cash flow- utlize excess cash generated instead of giving dividends or buying back stockks

- agency problems- managers desire for status and pecunairy benefits

-managerial buris- over confidence that aqcuring firm can manage the target frims assets mroe efficiently

- potential for above normal profits - some m and a have the potential to vreate value for both the acquirer and the trager

determinits of merger success

strategic vision and fit - clear rationale, types of mergers, syngeries, right partner, articulates and focuses on. long term comp advantage, designed for synergies in size, geograpgy, people or service, partners are the right chpoise to fulfill the strategic vision

due diligence - financial review and culturel org fit - formal review of assets, liabilities revenues, and expenses, evauating the culture, org git, and other non financial elements

pre merger planning - integration porccess, cooridante, commncate, decide fast - formulating the key integration procceses, decision are coordinated, communicated, and completed quickly

post merger integraiton- people, tech operations, custome relations

procceses inclduing management of hr, tech operatins, and customer relations are carefully blended- important decisions are made

strategic vision and fit

having a clear merger rationale that articutlaes and focuses on long term comp advrange

designed for syngerigeis in size, geo, people or service

partners are the right chocies to fulfull the strat vision

type of mergers

overcapavity - eleminate overcap, gain market share, create more efficent operation

geographic roll up - expand geogrpahically by biying many small units, operating units remain local, common in fragmented industries

the product or market expansion m and a - extend a companys product line or its international coverage

m an da as r and d - used in lieu of in house r and d to buidl market postion quickly

types of synergies

cost- aim to reduce or optimize cost by combining operaions, eliminating reduncianes, improving efficeincy, often realized more quickly than revenue synergies

rev - aim to increase the cobined company's ability to generate sales or reach new markets, focusing on top line growth

other- human capital, r and d may come into play depending on the industry and the specific of hte merger

cost syngeries

opeational - efficienceis from consoldiating operations, such as merging production faciltiies, integrating supply chians, or sharing tech

Financial- lowering cost of capital or achieving tax savings, the combined company may ger better financing terms due to increased size or reduced risk

econ of scale- as the combiend company operates at a larger scale, it can reduce per unit costs- might include negotiating better terms with suppliers or reducing overhead - large scale leads to low per unit cos

elimibate redundiances- reducing overlapping functions such as hr, it, or managment which rduces overhead

revneue synergies

cross selling - sellign complementary products form each company to each others customers - sell products across customer bases

access to new markets- m and a can provide access to new geo markets or cusptmer segments, expaning the company reach, increasing rev fo rht emerged entity - enter new geograpgic market

product and tech - combingin products or tech can create new offerings or imporve existing ones - product development or tech integration

imrpoved pricing power- a larger comp might acheve better pricign power by consildatin brands or offerings, reducing comp, r increasing market shrae - increased pricing control

strengthen distribution networks- merging companies cna share distribution channels and increase reach whiel redcuing delievery times- increase reach by combining distribution channels

other synergies

hr- leveraging each company's talent and expertise to innovate faster or improve capabilities - leverage talent and expertise

r and d- combingin reserach and development efforts can lead to faster innovation and reduced r and d costs

due diligence

conducing a formal review of assets, liabilties, revenu, and expenses

evaluting the culture, org fit, and other non financil elemtns

review is an investiation by a biyer of business to be acquired and is part of the biers risk managemnt tol set - critical analysis

importnat to verify the strategy and assumptions behind the acquistion decision

helps identiy the risk exposure adn the investmnet attractivness of the target - the higher the risk the broader the review shoud, be

data gathered during the review helps to negotaite the price and terms ofthe transacation and create approapte deal structure

important to for implementaiton of the acquistiion and successful operatin after the clsoing

due dilligence errors

limitaiton to financial and legal matters

delegation of review solely to outside advisors and consultants

appointment of team members who do not have sufficient experience, resources and time

use of the time only to make a go and no go deisicon ont eh transvtion rather than to obtain info for use in negiatiing and planning all aspects of the transvation including post transaction integration adn operation

role of investment banks

help strucutre the transaction

pitch the rihgt offer

provide valuable market intelligence - potentail response, iinformed view on reation of financialmarkets and company shareholers

calculation of a range of fair values

organize due diligence

offer finaincing solutons

guidance on how hwen adn how much

key insihdts on m and a

strat ritojnal, doe sthe investment thesis hold, what is the deal value and synveries, and then the true vlaue- subtracting out disyngeries

due diligence provideds key info on which deals t clsoe and for how mch

uber

seal: Uber invested about $460M for 51% of Cornershop, a grocery-delivery platform operating across several countries.

Why acquire? Expand Uber from rides + restaurant delivery into grocery delivery, supporting its goal of becoming the "operating system" for everyday life.

Uber strengths: huge network, technology, brand, scale; operated in 69 countries/10,000+ cities and completed 7B+ trips in 2019.

Cornershop strengths: grocery expertise + strong position in Latin America; held 70-80% of platform grocery-delivery sales in Chile.

Potential synergies: Uber can provide customers, drivers, technology, capital, and global reach → Cornershop gives Uber grocery capabilities → stronger network effects across its multisided platform.

Integration strategy = Symbiosis: high strategic interdependence + high need for Cornershop autonomy. Keep Cornershop's leadership/unique capabilities while gradually sharing resources and capabilities with Uber.

This matches the actual deal: Cornershop initially remained a separate brand under its existing leadership, and autonomy was an important reason Cornershop accepted Uber's offer.

Risk: too much integration could destroy Cornershop's valuable grocery expertise; too little integration means Uber may fail to capture the synergies that justified the acquisition

post merger integration

Integration depends on 2 key dimensions:

Strategic interdependence = how much the two firms need to combine/share capabilities to create acquisition value.

Organizational autonomy = how much the acquired firm must remain independent to preserve the capabilities that made it valuable.

4 integration approaches:

Absorption: High interdependence + Low autonomy → fully integrate the acquired firm.

Preservation: Low interdependence + High autonomy → keep acquired firm largely independent.

Symbiosis: High interdependence + High autonomy → initially preserve independence, then gradually increase interdependence.

Holding: Low interdependence + Low autonomy → little operational integration needed. The reading's matrix on p. 145 maps these approaches using the two dimensions.

Why autonomy matters: aggressive integration can destroy the acquired company's people, culture, knowledge, or capabilities—the exact things the buyer wanted.

Why interdependence matters: acquisition value often comes from transferring/sharing resources, functional skills, management capabilities, or other benefits between firms.

Symbiosis is the hardest: firms must simultaneously preserve boundaries AND create connections, gradually adapting to one another rather than immediately combining everything.

KEY TAKEAWAY: Don't automatically fully integrate an acquisition. Choose the integration strategy based on how much the firms need each other to create value vs. how much autonomy is needed to preserve the acquired firm's valuable capabilities.

pre merger planning

formulating the key integration proccess

desicions are coordinated, communicated, and completed quickly

prep period leading up to merger announcement

leadership- roles and responsbilties, leadership team selected, sometiems responsibitlies share din merger of equals

structure- the new company's structure as well as the structure of the integration management team

- in merger of equals, creating a new org might be preferred

timeline for the proccess- dates should be set for making key desicions and establishing metrics

then they are communciated widely

post merger integeration

proccesses inclduing the management of resoruces, tech operation and customer relations are carefully blended

important desciosn are made

desicion rules for integration

all econ value to be created is caputed after the deal. through interactions among individuals who have to be willing to collab in the transfer of strategic capabiltiy

immediate goal is human: to align two groups of indivduals, often with dif cultures and get them to collab towards shared obhectives

how these individuals work together is dictated by the org structure and design established during the integration process

desicion rules for integration continued

strategic interdependece - anticiapted relationship of the target to the acquier

organizational autonomy - thge way in which value is expected to be created

does org need to operate independetly to fulfill the strategic purpose of the aquisiton?- autonomy matters if preserveation of culture, leadership, etc. are vital to acheiving the strategic aims of the acquition

how closely must the target mesh the buyers value cahin and business proccesses iin order to attain the acquisitons aims

- a buyer pursuing a careful strat of vertical or horizontal integartion might find the issue of strategic interdpence importantn

strategic ways to integrate

preservation - exploration of new indsutry, sig cultural difference, learning about vlaue creation adn resources of the target

symbiosis - co evolution of buyier and target, intensive transfer of capapbilties, could lead to subsequent combination fo the two companies

these two are usually m and as r and d

holding - pure financial investment not a stratgic acquistion, no significant interest in combined benefit of sharing resoruces or transfering cabiltiies

absorption - high potential for rationaliztion, optimization of combined vaue creation, usualyl clear claim to leadership from maangermnet of buyer

overcapcity

symobosiis is uslaly market extension and geogrpahic rollout

achieciing accuess in mergers and acquistions

need to knwo the sources of value creationa nd capture in m and a

2+2>4 - need to be worth. more together than separeatly - econ of scale if same business or synergies from scope in resources

cannto replicate through portfolio investng

attention to deal price - total value created= value of synergy ( value creation that requires combining two entities) + value of control ( value creation that resides entirely in the target firm; usually obtained through the imporvement of managment at the target firm

integration consistent with startegy - strat interpdence vs autnomy

-

achieving success in mode of growth

organic growth, alliances, and ma and. da are alternative ways to acheuve atrat objectives of a firm

Develop growth strategy based on firm capabilities and an evaluation of environment and

industry analysis

• Evaluate best option to execute strategy based on a clear value proposition. OrganicGrowth, Alliance, Merger or Acquisition: Go after new resources in the simplest way that will satisfy your goals.

• Create a sound investment thesis based on sources of value creation to guide search for target firms to ally with or acquire. An acquisition is the most complex option.

• Pay attention to the process! Short changing the process could hurt the firm in the long