Gaining and Sustaining Competitive Advantage – Chapter 14

MERGERS AND ACQUISITION STRATEGIES

Jay B. Barney

MM UGM Yogyakarta, 18 December 2010

Group 3 AP-14 :o Bayu Setiaji

o Nureni Susilowatio Sri Muniati

Corporate StrategyDr. Amin Wibowo, MBA

Outline

1. The value of merger and acquisition strategies

2. Mergers and acquisitions and Sustained Competitive advantage

3. Organizing to Implement a Merger or Acquisition

The value of merger and acquisition strategies

• Depends on the market context within which these strategies are implemented

• Enables a firm to exploit competitive opportunities or neutralize threats; reduce its cost or increase its revenues and strategy will be economically valuable.

• Merger and acquisition between strategically unrelated firms and related firms

The value of merger and acquisition strategies

• Merger and acquisition between strategically unrelated firms cannot be expected to generate superior economic profits for both bidder and target firms

• Merger and acquisition between strategically related firms the economic value of these two firms combined is greater than the economic value of these two firms as separate entities

The value of merger and acquisition strategies

Types of Strategic Relatedness:

The value of merger and acquisition strategies

Types of Strategic Relatedness:

The value of merger and acquisition strategies

Types of Strategic Relatedness:

The value of merger and acquisition strategies

Motivation to engage in Mergers an Acquisition:

• The desire to ensure firm survival

• The existence of Free Cash Flow

• Agency problem between bidding firm manager and equity holders

• Managerial Hubris

• The possibility that some bidding firm might earn economic profit from implementing merger and acquisition strategies

Mergers & acquisitions and Sustained Competitive Advantage

Strategies:

• Valuable, rare and private

• Valuable, rare and costly to imitate

A bidding firm may exploit unanticipated sources of strategic relatedness with a target. This unanticipated sources of relatedness can also be a source of economic profits for bidding firms

Organizing to Implement a Merger or Acquisition

• Historical differences between between bidding and target firms may make the integration of different part of a firm created through acquisitions more difficult.

• Bidding firms need to estimate the cost of organizing to implement a merger or acquisition strategy and discount the value of a target by that cost

• However, organizing to implement a merger or acquisition to implement a merger or acquisition can also be a way in which bidding and target firms discover and anticipated economies of scope

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