Merger, Acquisition, and International Strategies - Case Study Example

Merger, Acquisition, and International Strategies Merger and Acquisition are two useful way to expand business. This report will try to analyze merger and acquisition strategy of two different public corporations of USA. Dupont and Hickory Tech have been selected as the companies in the study. This study will try to throw some light on business level strategy and corporate level strategy. Dupont uses business level strategy to expand business but there is an opportunity for the company to adopt other types of business level strategy. This report will try to address suitable business strategy for small companies like Hickory Tech. Finally the report will try to highlight future business strategy available for both companies. Table of Contents Table of Contents 3 Dupont and Hickory Tech 4 Merger or Acquisition Strategy of Dupont 4 Merger or Acquisition Strategy for Hickory Tech 6 International Business Level Strategy for Dupont 7 Recommendations 7 International Corporate Level Strategy for Dupont 8 Recommendations 8 International Business Level Strategy for Hickory Tech 8 Recommendations 9 International Corporate Level Strategy Hickory Tech 9 Dupont and Hickory Tech Dupont is a renowned American chemical company. The company is headquartered in Wilmington, Delaware, USA. It was founded by Eleuthère Irénée du Pont in the year of 1802. They are one of the top 500 Fortune corporations. Dupont is the largest chemical corporation in the country. The company was the first commercial gun powder producer in the country. Total market value of the company has doubled in last few years. The company has achieved a profit margin of 241% in the year of 1998 (Leemann, 2002). Hickory Tech is a small public corporation in USA. The company is headquartered in Mankato, Minnesota, USA. The company was founded in 1898. The company offers integrated telecommunication solutions to customers. The company specializes in multi-level fiber network. The telecommunication company also offers customer management systems and carrier access billing solutions for different domestic companies. The company has a subsidiary known as Enventis. The subsidiary offers network communication solutions, integrated voice and data processing for corporate customers. Hickory Tech is a gold certified partner of Cisco. The company is trying to expand business in the field of high-capacity transport services (Hickory Tech, n.d). Merger or Acquisition Strategy of Dupont Dupont is trying to diversify business. Recently the company has acquired Danish enzyme manufacturing company Danisco for $5.8 Billion. Value of the share has increased for Danisco from $91 to $115 after the acquisition. Dupont wants to enter into enzyme market for two reasons. 1- Enzyme market is attractive in terms of future growth. Enzymes can be used to manufacture different chemical products like animal food, detergents, organic food and many more. 2- Enzymes can increase volume of chemical yields. Usage of enzyme will reduce the input cost. Dupont will save $130 million in terms of operating cost as a result of the acquisition. The partnership will help the company to enter in the biofuel market. The company is already sharing ethanol producing facility with Danisco in the ratio of 50:50. A demonstration plant is founded in Vonore, Tennessee as a result of the partnership. The plant can produce 250,000 gallons of ethanol annually. The acquisition decision is a wise choice for Dupont due to following reasons. 1- Danisco is the second largest biofuel company in the world. Danisco has distributed a total return of 53 percent for last one year and this data shows financial stability of the company. The stock price of the Danish company has increased by 27 percent after the deal was finalized. 2- The deal will help Dupont to enter biofuel market. Danisko is helping the company to produce biofuels like ethanol. Dupont believes that the deal will reduce production cost of more than $110 million annually. The chemical company will use $3 billion of cash to finance the deal. Market value of the Dupont share has already increased by 21 percent as a result of the acquisition. Deutsche Bank is acting as financial advisor for both the companies. 3- Many financial analysts believe that the acquisition will help the chemical company to increase net income for years to come (Kaskey, & Sulugiuc, 2011). Merger or Acquisition Strategy for Hickory Tech Hickory Tech has not involved in any international merger or acquisition till date. The company is categorized as small public corporation by Forbes magazine. The company has few limitations like small employee base (around 500), target market is not large (only North America), low sales volume ($164 M) etc. These are barriers for the company to adopt merger or acquisition strategy. Hickory Tech can be a profitable organization to acquire or merge with for any big telecommunication company due to two different reasons. 1- Integrated voice solution and high-capacity transport services are two major breakthroughs in the field of telecommunication in recent years. Hickory Tech provides integrated voice solution and high-capacity transport solution to different corporate customers of North America. Any big telecommunication company willing to expand business in the area of voice communication will get a ready customer base after acquiring Hickory Tech. 2- Market capitalization of the Mankato based company is small. Any big Telecommunication company does not need to spend huge amount of money for the acquisition deal. The big telecommunication company will get an opportunity to use manpower of Hickory Tech. Cisco is trying to acquire Hickory Tech to expand business in North America. There are three reasons behind Cisco’s acquisition plan. 1. Mankato based Telecommunication Company is gold certified partner of Cisco. The telecom giant is well aware with the business function of Hickory Tech. The small telecommunication company is already taking help from Cisco in the functional area of integrated voice solution and high-capacity transport services. 2. The company has the ability to leverage Cisco’s customer base and technical expertise in terms of integrated voice communication. 3. Hickory Tech has the technical knowledge and service mix that can be integrated with Cisco’s distribution network (Stanford Graduate School of Business, 1999). International Business Level Strategy for Dupont Business level strategy for any company can be described in terms of achieving low cost in production, differentiation in products and focusing on smaller segment. Dupont is using differentiation strategy (producing products unique in quality and application) to expand business. They have already entered in the field of biofuel production and enzyme manufacturing. They have future plan to expand business in the area of food processing. The company has invested huge amount of capital to implement business level strategy. Recommendations In future the company needs to adopt low cost business strategy to increase profitability. Dupont will get the benefits like economies of scale in terms of large production capacity. International Corporate Level Strategy for Dupont In corporate level strategy companies can adopt three types of models. 1- Directional Strategy (focusing on growth of the business, managing market share of the company to a stable platform, 2-Portfolio Strategy (analyzing market in terms of strength, opportunities, weakness, threats), 3- Parenting Strategy (companies transfer resources and maintain workforce in the foreign country). Dupont is using directional strategy to leverage business internationally. The company has acquired Danish enzyme manufacturing company Danisco for $5.8 Billion recently. They are trying to establish strategic business units in foreign countries. Recommendations The company needs to use corporate retrenchment strategy to increase business efficiency. Dupont is not performing well in few countries due to poor production capacity and local government norms. The company requires shutting down poor performing plants to save huge amount of money. International Business Level Strategy for Hickory Tech Hickory Tech is not capable to expand business internationally due to lack of resources (Financial capacity, Human resources, product portfolio). Cisco can increase business efficiency in the field of integrated voice communication through acquisition of Hickory Tech. Cisco uses differentiation strategy to expand business. The telecommunication giant uses systematic business strategy to acquire small businesses. They use business level strategy for mainly three reasons, 1-Employee retention, 2- Increasing product line, 3- Profitable return on investment. Recommendations In the near future Cisco can adopt focus business strategy to increase loyal customer base. The company can target optical fiber manufacturing industry as focus segment. Many international companies need an efficient Enterprise Resource Planning (ERP) system to organize business related data, transaction documents. The telecommunication giant has the scope to expand business in the field of integrated ERP solution (Duffy, 2011). International Corporate Level Strategy Hickory Tech Hickory Tech can not adopt corporate level strategy to enter into international due to lack of resources (like Human resources, capital power and strong distribution network). Cisco has planned to acquire the company. The telecommunication giant uses directional strategy to diversify business. The company uses merger and acquisition model to expand business in the foreign country. Cisco gives importance on new product development and for this reason they need to upgrade technical expertise. The company has invested huge capital to upgrade their product portfolio in recent years. Cisco has the opportunity to expand product portfolio after each successful acquisition. They are focusing on developing systematic integrated voice solutions for customers and for this reason they are ready to acquire small telecommunication company specialize integrated voice technology Recommendations Cisco can use portfolio strategy to analyze market competition. The company needs to do SWOT analysis to understand existing market opportunities. Strong research and development team, financial resources are the strength for the company. Implementation cost for any new technology can be pointed as their weakness. Microsoft, Sun Microsystems, Oracle are the major competitors for the company. The company has the opportunity expand business in the field of integrated ERP solution. Major corporate like Pepsi, P&G are looking for efficient supply chain solution provider. They can expand business in the area of integrated supply chain management solution. The company needs to focus on market growth policy. References Duffy, J. (2011). What Would a Revamped Cisco Look Like. Retrieved from http://web2.clarkson.edu/projects/itl/mpX52/sp2011/cappeldj/041111-revamped-cisco.pdf. Hickory Tech. (No Date). About us. Retrieved from http://www.hickorytech.com/about-us.aspx. Kaskey, J, & Sulugiuc, G. (2011). DuPont Acquires Enzyme Maker Danisco For $5.8 Billion. Retrieved from http://www.bloomberg.com/news/2011-01-10/dupont-to-acquire-danisco-for-6-3-billion.html. Leemann, J.E. (2002). Applying Interactive Planning at Dupont: The Case of Transforming a Safety, Health and Environmental Function to Deliver Business Value. Retrieved from http://www.acasa.upenn.edu/SPAR_Article.pdf. Stanford Graduate School of Business. (1999). Cisco Systems, Inc.: Acquisition Integration for Manufacturing. Retrieved from https://gsbapps.stanford.edu/cases/documents/OIT26.pdf. Read More