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Chapter 7

Comm 401 chapter 7 good one.docx

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Department
Commerce
Course Code
COMM 315
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All

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Chapter 7 Merger and Acquisition Restructuring StrategiesAcquisition is increasingly popularAcquisition strategies are increasingly popular due toGlobalizationDeregulation of many industries in different economiesFavorable legislationResulting increase in number and size of domestic and crossborder acquisitions especially from emerging economiesDefinitionsMergerA strategy through which two firms agree to integrate their operations on a relatively coequal basis Few true mergers actually occur because one party is usually dominant in regard to market share or firm size Acquisition A strategy through which one firm buys a controlling or 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolioTakeoverA special type of an acquisition strategy wherein the target firm does not solicit the acquiring firms bidReasons for acquisition strategiesFirms use acquisition strategies toIncrease market powerExists when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or support activities are lower than those of its competitorsOvercome entry barriers to new markets or regionsAcquiring an established companywill be more effective than entering the market as competitor offering a product that is unfamiliar to current buyersAvoid product development cost increased speed to marketAcquisitions provide more predictable returns as well as faster market entry Returns are more predictable because the performance of the acquired firms products can be assessed prior to completing the acquisition Reduce the risk of entering a new businessAcquisition seems less risky because outcomes can be estimated more easily and accurately than the outcomes of an internal product development process Become more diversifiedIt is difficult for companies to develop products that differ from their current lines for markets in which they lack experienceAvoid excessive competitionMay use acquisition to lessen their dependence on one or more products or marketsShaping the firms competitive scopeLearn and develop new capabilitiesTo gain access to capacities they lack To increase market power Firms use horizontal vertical and related types of acquisitionsoHorizontal acquisitions the acquisition of a company competing in the same industry as the acquiring firm
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