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* CONTEMPORARY STRATEGY ANALYSIS tenth edition Robert M. Grant John Wiley & Sons Ltd., 2019 Chapter 14 External Growth Strategies: Mergers, Acquisitions, and Alliances Mergers and Acquisitions Strategic Alliances External Growth Strategies: Mergers, Acquisitions, and Alliances 2 OUTLINE 27 Global M&A * Chart Vodafone—Mannesman 3bn. Aol—Time Warner 5bn. Pfizer—Warner Lambert bn. Glaxo—Smith Kline Beecham bn.

SBC—Ameritech bn. Exxon—Mobil bn. Citicorp—Travelers bn. Dow Chemical—DuPont 0bn. Royal Dutch Shell—BG bn.

Charter Communication— Time Warner Cable bn. Dell—EMC bn. H.J. Heinz—Kraft Foods bn. RBS/Santander/Fortis—ABN AMBRO bn.

Enel—Endesa bn. Procter & Gamble—Gillette bn. Royal Dutch Petroleum—Shell bn. Sanofi—Aventis bn. JPMorgan Chase—BancOne bn.

Gaz de France—Suez bn. Pfizer—Wyeth bn. Novartis—Alcom bn. AT&T—BellSouth bn. Comcast—AT&T Broadband bn.

Bell Atlantic—GTE bn. Pfizer—Pharmacia bn. InBev—Anheuser-Busch bn. Bank of America —Merrill Lynch bn. . Verizon Communication— Verizon Wireless 0bn. .

Actavis—Allergan bn. . AT&T—Time Warner bn. Bayer—Monsanto bn. BAT—Reynolds bn. CVS—Aetna bn.

Cigna—Express Scripts bn. AT&T—Time Warner 9bn. Walt Disney—Fox bn. Value of M&A deals (S millions) Sheet1 Value of M&A deals (S millions) Are Mergers Successful? Evidence from Shareholder Returns: Small increase in the combined value of the 2 companies involved Gains flow (almost) entirely to shareholders of acquired companies Returns to shareholders of acquiring companies negative on average Evidence from Accounting Profits Diverse findings: “…the results from these accounting-based studies are all over the map†Key problem: separating the effects of the merger from the many other factors that influence firms’ profitability Diversity of M&A Lack of consistent findings reflects the vast diversity in types of mergers and characteristics of the firms involved Even when mergers categorized (e.g. horizontal, vertical, conglomerate) no consistent performance differences MERGERS AND ACQUISITIONS Success and Failure among Mergers and Acquisitions MERGERS AND ACQUISITIONS Successes Failures Exxon – Mobil Daimler - Chrysler Procter & Gamble – Gillette AOL-Time Warner Walt Disney Co. – Pixar Royal Bank of Scotland - ABN AMRO Tata Motor – Jaguar Land Rover Hewlett Packard - Autonomy Sirius – XM Radio Bank of America – Countrywide Cemex – RMC Alcatel – Lucent Bank of America – Merrill Lynch Sprint - Nextel Heinz–Kraft Foods Sears – K Mart Geely–Volvo Microsoft–Nokia Dell–EMC News Corp.–MySpace * Motives for Mergers and Acquisitions Managerial Motives Top management remuneration depends more on firm size than profitability Psychological rewards--M&As project power, confer CEO celebrity status Imitation: the fear of not participating in an industry’s merger wave Financial Motives Stock market inefficiencies—acquire undervalued companies (Berkshire Hathaway-Heinz): use overvalued equity to acquire (AOL-Time Warner) Quest for tax savings—cross-border acquisitions to relocate to lower tax regime (Burger King-Tim Horton) Financial re-engineering: debt-financed acquisitions that reduce the acquired company’s cost of capital (KKR-RJR Nabisco) Strategic Motives Horizontal M&A—economies of scale and market power (A-B Inbev-SAB Miller) Geographical extension M&A—to enter overseas market (Geely-Volvo) Vertical M&A—to acquire supplier or customer (Gencore-Xstrata) Diversifying M&A—to enter a new area of business (Amazon-Whole Foods) MERGERS AND ACQUISITIONS * Managing Mergers and Acquisitions Challenges of Pre-merger Planning Careful identification of the goals of M&A Difficulties in estimating the benefits of M&A: on average cost savings overestimated by 25%, revenue increases by 70% Challenges of Post-Merger integration Problems of integration: incompatible management systems; clash of cultures; adjustment difficulties by employees of acquired company Building acquisition capability—managing the learning process to ensure that acquisition experience builds capability Marching post-merger management to the strategic goals of the merger: leveraging the firm’s existing business model (e.g.

Walt Disney and Pixar) vs. reinventing the business model (e.g. HP and Autonomy) MERGERS AND ACQUISITIONS * Types of Strategic Alliance Strategic Alliances: Collaborative arrangements between two or more firms to pursue common goals Alliance goals: technological, marketing and distribution, operational, standard setting, lobbying… Formal (contractual agreements, written understandings) or Informal Equity (partners take equity stakes in one another) or non-equity Bilateral alliances (two partners), multilateral alliances (many partners), networks of alliances (Toyota supplier network; Apple “ecosystemâ€) Joint Ventures: Partners form a jointly-owned enterprise to pursue the goals of the alliance STRATEGIC ALLIANCES 17 SiRF Technology Holdings Inc Kia Motors Corp Uni-Pixel Inc Ube Industries Ltd Robert Bosch Stiftung GmbH Sala Enterprises Bglobal PLC Universal Display Corp IBM Corp SAP AG ARM Holdings PLC Global Foundries Singapore Panasonic Corp NTT NEC Corp Thomson SA KT Corp Dreamworks Animation SKG Inc Singapore Telstra Corp Ltd Intel Corp Hynix Semiconductor Inc Nanosys Inc TLC Corp SIP State Property Holding Juniper Networks Inc Infineon Technologies AG Reactrix Systems Inc Quintiles Transnational Corp Sumitomo Chemical Co Ltd Huawei Technologies Co Ltd Russia Samsung Electronics Fujitsu Ltd Source: Prof.

Andrew Shipilov Samsung Electronics’ Alliances, 2014 STRATEGIC ALLIANCES ISUZU SUZUKI TOYOTA IBC (built vans in the UK, ) GM NUMMI (produced cars in the US, ) Production JV; 10% ownership 40% owned 60% owned 50% owned 50% owned SAAB 50% owned FIAT Technical collaboration, joint purch-asing & 20% ownership, 2000-6 FAW JV producing light trucks in China DAEWOO 50.9% owned; technical & production collaboration AVTOVAZ JV produces cars in Russia SAIC Production JVs in China Indonesia, India PEUGEOT Joint development & purchasing HINDUSTAN MOTORS Production JV in India, NISSAN Product sourcing General Motors’ International Alliances STRATEGIC ALLIANCES * 18 Management Issues Motives: To exploit complementarities among the resources and capabilities of different companies, e.g. airline alliances allow access to members’ route networks; Bulgari and Marriott combine to operate luxury hotels These benefits include: Economizing on investment, Speed, Risk sharing, Learning (capability acquisition) Challenges: Need for relational capability: building trust, developing knowledge-sharing and coordination mechanisms Managing the relationship: greatest benefits often involve greatest management challenges—e.g. cross-border alliances Sharing of benefits: determined by strategic intent of the partners (Which partner is clearer about what it wants from the alliance?) appropriability of the contribution (Which partner’s resources and capabilities are easier to capture) absorptive capacity (Which partner is the faster learner?

STRATEGIC ALLIANCES 17 Do the firm’s resources and capabilities fit the needs of the current strategy? YES INTERNAL DEVELOPMENT NO Contract or inter-firm combination? Parties’ level of agreement over the value of the required resources HIGH LOW Alliance or acquisition? Desired closeness with resource provider CONTRACT HIGH LOW ALLIANCE ACQUISITION STRATEGIC ALLIANCES Choosing the Right Growth Path * CONTEMPORARY STRATEGY ANALYSIS tenth edition Robert M. Grant John Wiley & Sons Ltd., 2019 Chapter 15 Current Trends in Strategic Management The New Environment of Business New Directions in Strategic Thinking Redesigning Organizations The Changing Role of Managers Current Trends in Strategic Management OUTLINE The Turbulent 21st Century 2000: Collapse of “New Economy†Dot.com bubble bursts March 2000 NASDAQ at all-time peak Terrorism Attacks of September 11, 2001 Invasion of Afghanistan & Iraq Volatile Markets E.g.

Brent crude June ’09 8; Dec. ‘09 Decline of US world influence --emergence of a multi-polar world Globalization reverses The rise of economic nationalism 2008-9: Financial crisis The Third Industrial Revolution: Digital technologies Intelligent systems Disintermediation of human beings Demands of society Social & environmental responsibility Ethics & fairness Quest for meaning Natural Disasters Hurricanes, earthquakes, fires 2011: Arab Spring THE NEW ENVIRONMENT OF BUSINESS The New Politics The decline of liberalism The rise of demogogues The politics of identity Digital Technology Destruction of industries: travel agencies, bookstores, broadcast TV Rise of new industries: e-commerce, ride-share services, audio & video streaming, shared ownership, Transformation of industries: financial services, communications, dating Social Forces and the Crisis of Capitalism Twin pillars of Western civilization—liberal democracy & market capitalism—undermined by inequality, intolerance, decline of rationalism Competition Rise of dominant firms: in mature sectors (A-B Inbev, Starbucks, Boeing, Walmart; in new industries (Alphabet, Apple, Alibaba, Amazon, Facebook, Tencent) New competitors from emerging markets (Huawei, Haier, Infosys, Embraer) Systemic Risk In interconnected world,initiasl disturbances are amplified and transmitted: e.g.

Financial crisis of 2008-9, Arab Spring, Islamic State Forces Shaping the Business Environment THE NEW ENVIRONMENT OF BUSINESS Ratio of average CEO compensation to that of the average worker, USA THE NEW ENVIRONMENT OF BUSINESS Chart Ratio of CEO pay to that of average worker Sheet1 Ratio of CEO pay to that of average worker NEW DIRECTIONS IN STRATEGIC THINKING Managing Options Turbulence increases option values Strategies to create options: lower financial leverage, experimentation, exploratory R&D, alliances, product platforms Seeking More Complex Sources of Competitive Advantage Multiple layers of competitive advantage Exploiting cross-business linkages Emphasis on innovation and new business development Understanding Strategic Fit Complementarity of management practices The implications of complexity Contextuality of linkages Reorienting Corporate Objectives Emphasis on stakeholder goals and societal role of firms Focus on profit drivers rather than stock market valuation Rethinking Strategy © 2019 Robert M.

Grant Strategy in a Digital World See next slide The strategic characteristics of digital industries Industry structure Importance of complementary products Network externalities Complex industry Structures (“ecosystemsâ€) Potential for complex and innovative business models Competitive advantage Fast cycle innovation and product development Swift erosion of competitive advantage (unless supported by network dominance)—hence need for speed Ease of imitation of successful strategies Critical importance of timing: strategic windows of short duration Platform competition and winner-take-all markets) Strategic characteristics Strategy implications Fungibility of IT resources Ease of diversification between technology-based industries NEW DIRECTIONS IN STRATEGIC THINKING The New Environment of Business Multidimensional structures Informal organization REDESIGNING ORGANIZATIONS The Emerging Shape of the Business Enterprise New Directions in Strategic Thinking Self- organization Permeable Boundaries THE REQUIRED COMPETENCIES OF BUSINESS LEADERS motivating colleagues cultivating sense of purpose cross-cultural flexibility self-awareness resolve proactivity problem-solving relationship building vision THE LEADERSHIP NEEDS OF ORGANIZATIONS The ability to: build confidence build enthusiasm cooperate deliver results form networks influence others use information New Models of Leadership THE CHANGING ROLEOF MANAGERS

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Contemporary Strategy Analysis: External Growth Strategies through Mergers, Acquisitions, and Strategic Alliances
In the ever-evolving landscape of global business, organizations frequently pursue external growth strategies to enhance their competitive positions. Mergers and acquisitions (M&A) and strategic alliances are two pivotal pathways for achieving this growth. According to Robert M. Grant in his work "Contemporary Strategy Analysis," these strategies enable companies to increase market share, leverage technological advancements, create efficiencies, and expand into new markets (Grant, 2019).
Mergers and Acquisitions: Purpose and Performance
Mergers are defined as the combination of two companies to form a new entity, while acquisitions involve one company taking over another (Grant, 2019). The strategic motives for engaging in M&A activities can be categorized into several types, including managerial motives (such as the desire for size and status), financial motives (such as acquiring undervalued firms), and strategic motives (like expanding geographical reach or entering new markets) (Brealey et al., 2020).
Data from Grant (2019) demonstrates that the value of M&A deals often exceeds millions of dollars, with high-profile cases like the merger of Exxon and Mobil valued at billion and Bank of America’s acquisition of Merrill Lynch at billion. However, the success of these mergers is frequently called into question. Research indicates that while acquired companies tend to see stockholder gains, acquiring firms often experience negative returns in the long run (Moeller et al., 2004). This leads to questions about the long-term sustainability and strategic fit of such partnerships.
Challenges in Mergers and Acquisitions
The success or failure of mergers hinges on effective pre-merger planning and post-merger integration. Goals of the merger must be clearly defined, benefits accurately estimated, and the objectives aligned among involved parties (Fleming, 2018). Disparities in corporate culture, management styles, and operational philosophies can impede the integration process, leading to failure despite strong initial intentions (Naveen et al., 2019).
Proper post-merger management is vital. Companies like Walt Disney, which successfully integrated Pixar, leveraged existing business models to enhance performance (Grant, 2019). Conversely, the ill-fated merger of Daimler and Chrysler illustrates the risks involved when misalignment and cultural clashes occur (Schweiger & Weber, 2019).
Strategic Alliances: A Flexible Alternative
Strategic alliances involve collaborative arrangements between firms to pursue common goals without merging into a single entity. These can take various forms, including joint ventures, which are more formal collaborations involving equity investment, or contractual agreements reflecting mutual interests (Grant, 2019).
As organizations become increasingly interconnected, strategic alliances present opportunities for shared investment, reduced risk, and accelerated learning through cooperation (Gulati, 1998). Successful alliances, such as the partnership between Toyota and its suppliers, capitalize on complementary resources and capabilities, enabling members to achieve collective benefits (Grant, 2019).
The Necessity and Management of Alliances
Establishing a successful alliance requires strong relational capabilities, including trust and knowledge-sharing (Perry, 2014). Moreover, firms must navigate the complexities of benefit-sharing established by the strategic intent and absorptive capacity of each partner (Mowery et al., 1996). Hence, a successful alliance is as much about management and adaptation as it is about the initial agreement.
Problematic examples also exist, notably in cases where parties fail to completely align their strategic intents or manage interdependencies effectively, leading to conflicts and dissolution (Hamel, 1991).
Conclusion: Navigating Growth Strategies
The landscape of business strategy increasingly reflects a complex intermingling of mergers, acquisitions, and strategic alliances. While these external growth strategies possess the capacity to enhance company performance and market positioning, they also carry inherent risks and challenges. Balancing growth through careful planning, management, and negotiation of strategic partnerships is essential for firms aiming for longevity and success in this turbulent environment.
References
1. Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance. McGraw-Hill Education.
2. Fleming, L. (2018). "The Role of Pre-Merger Planning in Successful M&A." Harvard Business Review.
3. Grant, R. M. (2019). Contemporary Strategy Analysis (10th ed.). Wiley.
4. Gulati, R. (1998). "Alliances and Networks." Strategic Management Journal, 19(4), 293-317.
5. Hamel, G. (1991). "Competition for Competence and Inter-Partner Learning within International Strategic Alliances." Strategic Management Journal, 12(Special Issue), 83-103.
6. Mowery, D. C., Oxley, J. E., & Silverman, B. S. (1996). "Strategic Alliances and Interfirm Knowledge Transfer." Strategic Management Journal, 17(Winter Special Issue), 77-91.
7. Moore, G. A. (2004). "The Challenge of Disruptive Change." Harvard Business Review.
8. Naveen, L., Taneja, S., & Taneja, P. (2019). "The Role of Organizational Culture in Successful Mergers." Journal of Business Research, 100, 345-353.
9. Perry, M. (2014). "Navigating Strategic Alliances: An Analytical Approach." Strategic Relationships Journal, 7(1), 45-58.
10. Schweiger, D. M., & Weber, Y. (2019). "Top Management Team Integration and the Role of Organizational Culture in Post-Acquisition Performance." International Journal of Mergers and Acquisitions, 3(2), 107-127.
This examination highlights that while external growth strategies offer significant opportunities, their successful realization is contingent upon thorough planning and management to mitigate risks associated with integration, culture clashes, and misalignment of goals.