Harrison

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Harrison St. John Chapters 5 6

• Corporate-Level Strategy

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A Diversified Company Has Two Levels of Strategy
competitive advantage
value
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Key Questions of Corporate Strategy
1. What businesses should the corporation be in?
2. How should we balance centralization and
decentralization in the management of these
business units?
Corporate Strategy is what makes the corporate
whole add up to more than the sum of its business
unit parts
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Levels and Types of Diversification
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Adding Value by Diversification
Diversification most effectively adds value by
either of two mechanisms
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Incentives to Diversify
External Incentives
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Incentives to Diversify
Internal Incentives
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Diversification and Firm Performance
Performance
Level of Diversification
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Mergers and Acquisitions
Merger
A transaction where two firms agree to integrate
their operations on a relatively coequal basis
because they have resources and capabilities that
together may create a stronger competitive
advantage
Acquisition
A transaction where one firm buys another firm
with the intent of more effectively using a core
competence by making the acquired firm a
subsidiary within its portfolio of businesses
Takeover
An acquisition where the target firm did not
solicit the bid of the acquiring firm
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Problems in Achieving Success
Reasons for Acquisitions
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Reasons for Acquisitions
Example British Petroleums acquisition of U.S.
Amoco
Example Belgian-Dutch Fortis acquisition of
American Bankers Insurance Group
Example Tootsie Roll Industries acquisition of
Charms
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Reasons for Acquisitions
Example Kraft Foods acquisition of Boca Burger
Example CNETs acquisition of mySimon
Example General Electrics acquisition of NBC
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Problems with Acquisitions
Example Intels acquisition of DECs
semiconductor division
Example Marks and Spencers acquisition of
Brooks Brothers
Example AgriBioTechs acquisition of dozens of
small seed firms
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Problems with Acquisitions
Example AOL and Time Warner
Example Sears buys Dean Witter, Coldwell Banker
Example Ford and Jaguar (and Volvo, Land Rover,
etc.)
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Attributes of Effective Acquisitions
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Attributes of Effective Acquisitions
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Restructuring Activities
Example General Electrics cutting of its
worldwide workforce by 104,000 jobs (1980-90)
Example Sears sells Dean Witter, Coldwell Banker
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Restructuring Activities
A party buys a firms entire assets using
borrowed money (leverage) in order to take the
firm private.
Example KKRs buyout of RJR-Nabisco (1989-95)
Legal proceeding where a firm works out a plan to
solve its financial problems under court
supervision.
Example WorldCom Corporation (July 21, 2002)
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Restructuring and Outcomes
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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Downsizing
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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Loss of Human Capital
Reduced Labor Costs
Downsizing
Lower Performance
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Restructuring and Outcomes
Short-Term Outcomes
Long-Term Outcomes
Alternatives
Loss of Human Capital
Reduced Labor Costs
Downsizing
Reduced Debt Costs
Lower Performance
Downscoping
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Summary Model of the Relationship Between Firm
Performance and Diversification
Resources
Diversification Strategy
Firm Performance
Incentives
Managerial Motives