Merger, Acquisition, and International Strategies - Essay Example

? Merger, Acquisition, and International Strategies Raymond Lane George Best Business 499 November 29, Merger, Acquisition, and International Strategies 1. The strategy that led to the merger or acquisition to determine whether this merger or acquisition was a wise choice Merger is a term used in the corporate world to refer to an instance where two or more companies agree to join to form a new company. The merged companies enter into a deal and forge ahead as a single entity. In mergers, stocks for both companies must be surrendered and a new company stock is put in place. The merging companies should often have nearly the same or equal valuation. Acquisition refers to an act where one company agrees to buy assets and liabilities of another through a signed deal. In acquisition, one company purchases another and establishes itself as a new owner. Normally, the dissolving company has to get the approval to merge with another through a majority vote of the share holders or as stipulated in the company’s constitution. The driving principle in mergers and acquisition is to make investor value. This means that after the merger the value of the two companies must exceed the value of the individual companies before the merger (Mills, 2007). It is important to note that the reasons behind mergers are far reaching, especially during the hard economic times. During such periods, big companies take the advantage of receding companies through share purchases with a view of creating a competitive advantage while achieving cost reduction. Any meaningful merger should be able to gain greater market share and efficiency. Once an agreement has been reached, then it should be made legal and its implementation done within the period stipulated in the agreement. The culture and working environment of the target company’s workforce must be considered at the time of merger acquisition strategy. When this is done, the workforce will not feel left out in the agreement and this boosts morale. The process of merging and acquisition is vital deal whose signing determines the gains and profits of the merging corporations. The process should therefore, be conducted in defined steps. The decision to have merging between two companies is complex in nature. This is because if it is not done carefully, it can affect the gains intended for in the merger or acquisition. In addition, merger and acquisition process should be conducted in steps as earlier stated. The initial step is the business valuation step in which the value of stock is assessed. In the assessment, the current financial performance as well as the estimated future performance is examined. Such steps should be geared towards profitability (Rosenbaum, 2008). 2. Identify one (1) company that would be a profitable candidate for the corporation to acquire or merge with and explain why this company would be a profitable target. Alcoa is a leading aluminum company in the United States of America. This public corporation was formed in 1907. The acronym Alcoa was coined in 1910 because of a merger with another company, which later in 1999 adopted it as an official name in 2001; Alcoa went into an acquisition agreement with Aluminum Corporation of china (Chalco) buying from them 9% of their shares. Alcoa has had a number of challenges since its inception, for instance in 1938, the department of justice-sued Alcoa for trying to monopolize. It also faced a financial crisis in 2004 leading to the sale of one of its divisions to Rhone Group, which has adopted the name Almatis Inc (Kazmi, & Kazmi, 2008). in the present day. In 2005, Alcoa acquired Russia and Belaya Kaliva production facilities that were major industry players to boost its performance and gain international recognition. It was during this time that Alcoa began improving on its performance when it started the construction in Iceland. This was the company’s first Greenfield smelting centre. This centre has been in existence for the last 20 years amid criticisms of corruption. In 2006, Alcoa shifted its principle offices from Pittsburgh to New York. Later during the same year, Alcoa was named, among other corporations, as the top three most sustainable, economically viable corporations in the world. This was at the world economic forum. Alcoa entered into an agreement in July of 2012 to acquire Evermore Recycling. Evermore Recycling is a corporation that buys and recycles fruit cans. The agreement by the two companies was based on some common interests (Eade, 2008). The following strategies prompted the merger between Alcoa and Evermore Recycling Corporation: Positioning The two companies might be seeking to utilize chances in the coming future through economies of scale and subsequent cost reduction. Alcoa is a broad company that has a strongly established structure. The merger and acquisition with Evermore Recycling Corporation will position it in the market. However, this may not be good bearing in mind the structures and systems that belonged to Evermore Recycling “swallowing” its activities and human resource (Mills, 2007). Gap filling This is an instance where one company has a major weakness in its operations whereas the company that merges with it has strengths over the same weakness. When the two companies are joined through merger or acquisition, each company fills into the weakness of the other in a complimenting manner (Kazmi, & Kazmi, 2008). Organizational competencies Alcoa Corporation and Evermore Recycling Company were initially independent companies that managed their own human resource and workforce and had its own structures and systems. Broader market access Marketing strategy is a crucial aspect and reasons behind most mergers and acquisition. It is therefore paramount for companies to widen their access to markets. From Mills (2007) Organizational behavior in a global context, Alcoa and Evermore Recycling were known to be experiencing a receding market access. In order to avoid an immediate failure and closure merging was inevitable. The merger would see the two companies broaden the market access and hence increased chances of survival in the competitive world (Rosenbaum, 2008). The acquisition of Evermore Recycling Company by Alcoa is to the disadvantage of Evermore Recycling Company. This is because the acquisition strategy accepted and signed into is a poor strategic fit. This is because it cannot benefit from any of the power and profit sharing agreements stated in the merger. Secondly, Alcoa Corporation is too optimistic towards the acquisition with minimal interest on the survival of Evermore Recycling Company. In addition to this, during the merger, there was no clearly defined plan to integrate the two companies. As a result, implementing the merger can be somewhat a challenge to the incoming management team. Corporate goals strategy refers to; goals, vision, and objectives encompassed in a strategy (Hitt, Ireland, & Hoskisson, 2007). 3. For the corporation that operates internationally, briefly evaluate its international business-level strategy Corporations operating internationally have greater tasks of ensuring they maintain quality and reliability of products and services throughout. Without focused strategies, the organization cannot meet its objectives. General Motors is an international corporation and its business-level strategy include Diversification - this is intended for smoothing out earnings while building long-term profitability. Diversification is possible through mergers and acquisition where traditional financial management is in play. This is often possible in competitive corporate world where future survival is unpredicted (Mills, 2007). Since the world is currently highly competitive mainly the motorcar industry, an international corporation need to ensure they have strong management and innovative skills to boost company performance. General Motors, thus, need to ensure it recruit the best management team and ensure it embrace technological advancement throughout its operations. The adoption of modern technology will ensure the organization remain on top and always produce quality products for the market (Kazmi, & Kazmi, 2008). 4. For the corporation that does not operate internationally, propose one business-level strategy and one corporate-level strategy that you would suggest the corporation consider. Justify your proposals. Non-international Corporation such as banking organization for example TD bank need strategic plans to ensure it take control of their local markets. Most of the strategies are focused on local interests and internal objectives of the organization. Some of the strategies of business-level include bargain purchase - This occurs when one company acquires an idle facility belonging to another for purposes of expansion. This style of acquiring an asset may cheaper and faster than building a new facility mainly within the service industry and banking sector as TD has planned. The corporation also targets short-term growth where the company experiencing internal growth and improved fast profits. This may necessitate a merger between two or more companies for the sole purpose of profit maximization and benefiting from economies of scale (Hitt, Ireland, & Hoskisson, 2007). For further development the corporation should look into its financial reasons - The non-international Company’s assets should be above those of its competitors at all times and to sustain that its financial base need other external sources and support by the stakeholders. The corporation should also look into and specialize in merging and acquiring poorly performing companies then brings in a better management with the hope of reviving profits (Hitt, Ireland, & Hoskisson, 2007). References Eade, Christine (2008). "Alcoa sells vacant factory for ?13m | Markets - print". Property Week. Retrieved 2010-07-13. Hitt, M. A., Ireland, R. D., &Hoskisson, R. E. (2007). Strategic management: Competitiveness and globalization: concepts. Mason, OH [etc.: South-Western. Kazmi, A., &Kazmi, A. (2008). Strategic management and business policy. New Delhi: Tata McGraw Hill Education. Mills, A. J. (2007). Organizational behaviour in a global context. Peterborough, Ont: Broadview Press. Rosenbaum, David Ira (2008). Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance. Praeger Publishers via Greenwood Publishing Group. Read More