U7 Do-It-Yourself, Buy, or Ally?

Question 1

Ten Reasons Mergers and Acquisitions Fail: The Most Common Causes For Companies Failing to Integrate and Profit from M&A Activity.

Having spent the first 17 years of his career reshaping companies acquired by an inter­national group before focusing on?

Answer 1

M&A consultancy across several industries, Paul J. Siegenthaler has seen his fair share of M&A pitfalls.

Question 2

Here’s his take on the most common causes behind the fact that?

Answer 2

the majority of company integrations fail.

Question 3

Ignorance.
While the parties in a merger or acquisition cannot exchange commercially sensitive information prior to?

Answer 3

being under common ownership, there is enough crucially important and legally permissible preparation work to keep an integration team busy for several months before day one.

Question 4

Most chief executives don’t know this and they waste time that could be put to good use while waiting for ?

Answer 4

clearance from the regulatory authorities.

Question 4

Good preparation means?

Answer 4

the integration can kick off on day one. Speed matters.

Question 5

No common vision.
=In the absence of a clear statement of what the merged company will stand for,
= how the organization will operate,
=what it will feel like,
= and what will be different compared to how things are today,
=there is no point of convergence on the horizon and the organizations will never blend.

Question 6

Nasty surprises resulting from poor due diligence.

Answer 6

This sounds basic, but happens so often.

Question 7

Team resourcing.

Resource requirements are very often underestimated. It can take—————————months to release the best players from daily business to join the ——————————- when the deal is completed.

Answer 7

two or three

integration team(s),

Question 8

find a backfill for them, sign up contractors to?

Answer 8

fill the gaps, and set up the team’s infrastructure. Most companies start too late and are not ready

Question 9

Poor governance.

Lack of clarity as to who decides what and no clear issue resolution process. Integrating organizations brings up a myriad of ?

Answer 9

issues that need fast resolution or else the project comes to a standstill. Again, speed matters, but with a sound decision-making process.

Question 10

Poor governance. Lack of clarity as to who decides?

Answer 10

what and no clear issue resolution process.

Question 11

Integrating organizations brings up a myriad of issues that need?

Answer 11

fast resolution or else the project comes to a standstill.

Again, speed matters, but with a sound decision-making process.

Question 12

Poor communication.

Messages too frequently lack relevance to their audience and often hover at the strategic level when what employees want to know is?

Answer 12

why the organization is merging, why a merger is the best course action it could take, how the company will be better after the merger,

Answer 13

how it will ‘feel’, how the merger will affect their work, and what support they will receive if they are adversely impacted.

Question 14

Lack of courage.

Answer 14

Delaying some of the tough decisions that are required to integrate two organizations can only result in a disappointing outcome.

Answer 15

Making those decisions will not please everyone but has the advantage of clarity and honesty and allows those who do not find the journey and destination appealing to step off before the train gathers too much speed.

Question 16

Weak leadership.

Answer 16

Integrating two organizations is like sailing through a storm: you need a strong captain, someone whom everyone can trust to bring the ship to its destination,

Answer 17

someone who projects energy, enthusiasm, clarity and who communicates that energy to everyone.

Answer 18

If senior managers do not walk the talk, if their behavior and ways of working do not match the vision and values the company aspires to

Answer 19

, all credibility is lost and the merger’s mission is reduced to meaningless words.

Answer 20

Lost baby with bathwater.
Companies contemplating a merger or acquisition too often omit to pinpoint what particular attributes make the other party attractive

Answer 21

and define how they will ensure those attributes do not get lost when the organization and the culture have changed. Culture cannot be bought – it needs to be embraced.

Question 22

Do-It-Yourself

In order to embark on the path of strategic growth, organizations have three different options:

Answer 22

==They can decide to grow organically.
==They can merge with or acquire another organization.
==They can form a strategic alliance.

Question 23

This section looks at the organic growth option, otherwise known as?

Answer 23

the ‘do-it-yourself’ (DIY) approach.

Question 24

Organic growth is the investment into the development and growth of ?

Answer 24

the company’s own resources and capabilities.

Question 25

The advantages of this strategic growth option are that?

Answer 25

the organization takes the time to grow into new areas and builds up its own experience.

Question 26

The slow growth allows companies to spread the investment costs over time, making this growth much easier to?

Answer 26

finance than other growth options.

Question 27

The company does not need to find a suitable partner in order to?

Answer 27

form an alliance or merge. It stays independent and can continue on its strategic path.

Question 28

One example of an organization that decided to?

Answer 28

grow organically is Amazon. Amazon developed the e-book reader ‘Kindle’ and its own e-book store.

Question 29

This expansion into the e-book market came through ?

Answer 29

the internal development of the Kindle reading device.

Question 30

Amazon used its experience from the online book business and its software competence. After many years of being an online store for?

Answer 30

all products, Amazon went back to its roots with this new technology.

Question 31

The Kindle is a hugely successful product and sales are growing continuously. Founder Jeff Bezos attributed the growth to?

Answer 31

the low price of the Kindle reader compared to other devices (such as the Apple iPad), the large number of e-books available to customers, and fast delivery.

Question 32

Organic growth, however, did not come without expense for Amazon. The company invested?

Answer 32

a great deal of money in digital offers and e-books.

Question 33

The example of Amazon clearly illustrates that organic growth is———————–. Often, the resources to grow into innovative new markets, to ————————–, or enter international markets are not readily ———————.

Answer 33

not easy

diversify
available

Question 34

To succeed in growing organically, companies need an innovative and entrepreneurial corporate culture. They also have to be?

Answer 34

prepared to invest heavily in these new projects and wait a long time until the product or service is ready to enter the market.

Question 35

Mergers and Acquisitions (M&A)

In addition to organic growth as an option for expansion, companies can also grow by?

Answer 35

merging with another organization or acquiring another organization.

Question 36

A merger is defined as the formation of a larger organization by two companies that?

Answer 36

operate as more or less equal partners.

Question 37

This is different to an acquisition of a company, which is the takeover of?

Answer 37

one company by another.

Question 38

If it is supported by both organizations, this is known as a ——————————. A ————————————–is one that is not welcomed by the assumed target and happens mostly by one company acquiring a majority of———————-of the other company.

Answer 38

‘friendly takeover’

‘hostile takeover’

the shares

Question 39

Motives for Mergers and Acquisitions

There are various strategic reasons for mergers and acquisitions. In addition to these strategic reasons, there are?

Answer 39

usually financial implications and most often additional personal reasons for deciding to merge with or acquire a company.

Question 40

As a general rule, ——————————- will play a role in the decision.

Answer 40

all three factors

Question 41

Amazon

Answer 41

This is an online store that started as a bookstore. Today, anything can be purchased through the Amazon website.

Question 42

e-book

Answer 42

An e-book is a book that is available in electronic form and can be accessed with an e-book reading device.

Question 43

Ten Reasons Mergers and Acquisitions Fail: The Most Common Causes For Companies Failing to Integrate and Profit from M&A Activity.

Answer 43

Ignorance.
No common vision.
Nasty surprises resulting from poor due diligence.
Team resourcing.
Poor governance.
Poor communication.
Poor program management.
Lack of courage.
Weak leadership.
Lost baby with bathwater.

Question 44

Motives for Mergers and Acquisitions

Answer 44

Strategic motives
Financial motives
Personal\/management motives

Question 45

Strategic motives

Companies can expand their range of products through mergers and acquisitions. They can also?

Answer 45

enter new markets and businesses or expand internationally into new countries or regions.

Question 46

These strategic motives look at increasing the size of?

Answer 46

the organization in order to benefit from economies of scale.

Question 47

In the example of the Chinese motor company Geely, the acquisition of?

Answer 47

Volvo demonstrates an expansion into a different country.

Question 48

Geely Buys Volvo. Believe It or Not, It Could Work

Mergers and acquisitions in the car business have a terrible record. —————————stands tall as the worst example of a——————————————.

Answer 48

DaimlerChrysler
bad marriage

Question 49

General Motors made a hash of Saab and Hummer and its tie-ups with?

Answer 49

Isuzu, Suzuki, and Subaru didn’t yield much either.

Question 50

Tata has struggled with ——————————–and now that Ford is sending————- off in a boat to China, we have to ask, can Geely make a go of this?

Answer 50

Jaguar and Land Rover

Volvo

Question 51

It’s going to be a tough job. Geely is paying $1.8 billion for the brand. Volvo sales of 335,000 globally are off 11% this year and 27% off their?

Answer 51

peak, according to this Bloomberg story.

Question 52

The Swedish carmaker has lost $2.6 billion during the last two years. The brand hasn’t been a real moneymaker for?

Answer 52

a very long time. Its costs are high and prices are strong but Volvo doesn’t command luxury premiums for its cars.

Question 53

On paper, at least, this could be a very good deal for Volvo. Be clear about one thing. Zhejiang Geely Holding Co., not the—————–, is buying Volvo.Belgium.”

Answer 53

carmaker

Question 54

This is an important distinction, says?

Answer 54

Jim Hall, principal of 2953 Analytics in Birmingham, Mich.

Question 55

It indicates that Volvo won’t just be folded into Geely and lose the brand’s strong Nordic identity.

Question 56

Geely Chairman Li Shufu said with unintentional humor that, ?

Answer 56

“I see Volvo as a tiger. It belongs to the forest and shouldn’t be contained in the zoo,” Li said in Mandarin.

Question 57

“The heart of the tiger is in ———————————————-.

Answer 57

Sweden and Belgium.”

Question 58

Volvo will keep its own management team, board of directors and headquarters in ?

Answer 58

Gothenburg, Sweden

Question 59

That would indicate that Volvo will keep its —————————————-. European and American Volvo loyalists will still be buying cars engineered in ————————-and built in Europe.

Answer 59

Swedish heritage and cachet

Gothenburg

Question 60

What that would mean, however, is that Geely is buying Volvo and lingering on with the same money-losing structure. That’s where China comes in. The Chinese luxury market is?

Answer 60

booming and still has room for some other players to come in and build a brand. Geely will assemble Volvo cars in China using cheaper manufacturing, Hall says.

Question 61

The brand is upscale and Geely ownership might even be seen as?

Answer 61

preferable by Chinese consumers.

Question 62

The brand is upscale and Geely ownership might even be seen as preferable by Chinese consumers. So the company can?

Answer 62

increase sales and get larger margins in China.

That makes the business case work better than it ever did either under Ford or as an independent carmaker.

Question 63

After so many failed auto deals, this one has the makings of a success. Of course, it means?

Answer 63

Geely can’t manhandle Volvo.

Question 64

They need to rely on Ford and the Swedes for?

Answer 64

technology that will make the Chinese cars real Volvos.

Question 65

In short, they should manage it as?

Answer 65

a separate subsidiary the way Volkswagen Group runs Audi AG.

Question 66

Give it autonomy and let the tiger run. Volvo is a ——————————– and will never be a ————————–. But it certainly could work if Geely gives it some —————.

Answer 66

niche brand

cash cow.
independence

Question 67

Companies try to optimize their business model and become more efficient through?

Answer 67

a merger or an acquisition.

Question 68

For example, departments such as administration or logistics can often?

Answer 68

merge their resources and benefit from increased efficiencies. Increasing an organization’s size through a merger or acquisition boosts its market power.

Question 69

If a company acquires a competitor, the effect is multiplied:

Answer 69

the organization reduces the competition by means of the acquisition and augments its power to negotiate lower prices with suppliers through its increased size.

Question 70

Through an increase in economies of scale, the company sells larger quantities and can influence the market price for?

Answer 70

the product or service offered, thus increasing its profit margin.

Question 71

A further reason for mergers and acquisitions is?

Answer 71

the expansion of the company’s capabilities.

Question 72

Amazon could have merged with an electronics company such as?

Answer 72

Sony or acquired the smaller French pioneer Bookeen in the e-book business.

Question 73

In choosing this option, Amazon would have acquired the capability instead of ——————-. However, the organic growth option made
————an expert in the e-book business.

Answer 73

developing it

Amazon

Question 74

Financial motives

In addition to strategic goals, mergers and acquisitions often have financial goals. Corporations may increase their financial efficiency by?

Answer 74

offsetting the profits of one entity with losses from another.

Question 75

In addition to strategic goals, mergers and acquisitions often have financial goals. Corporations may increase their financial efficiency by offsetting the profits of one entity with losses from another. Thus, ?

Answer 75

the entity that made a loss can pay its liabilities with the profits of the other entity in the corporation.

Question 76

The corporation benefits from the growth in size by?

Answer 76

acquiring the indebted entity and both sides benefit from the merger.

Question 77

Further financial considerations for a merger or acquisition are?

Answer 77

possible tax advantages

Question 78

. A company that operates in a country with high taxes may merge with or acquire a company in?

Answer 78

a country with low taxes in order to pay their taxes in that country

Question 79

Hostile takeovers often aim at increasing the assets of?

Answer 79

the acquiring company.

Question 80

Hostile takeovers often aim at increasing the assets of the?

Answer 80

acquiring company

Question 81

This is done by breaking up the acquired entities into?

Answer 81

parts and selling these parts off.

Question 82

The individual parts of the organization are often worth more than———————————–. As such, the acquiring company makes a profit from the ————————————–.

Answer 82

the entire company

sale of these parts

Question 83

Personal\/management motives

General management motives also influence the decision in favor of?

Answer 83

a merger or acquisition.

Question 84

The personal ambition of a CEO may play a role in ————decisions. Managers are often evaluated on ———————–results and the target ——— price.

Answer 84

M&A

short-term growth

share

Question 85

To achieve the growth goal fast, the company can merge with or acquire another company instead of?

Answer 85

trying to grow organically over a long period of time.

Question 86

Successful takeovers boost the reputation of?

Answer 86

the manager as the name appears in the media.

Question 87

At times, the pressure from the shareholders might be strong if M&A are a trend in the industry and managers could succumb to?

Answer 87

the pressure and participate in the trend.

Question 88

What Criteria Play a Role in the Selection of a Company for M&A?

If companies want to grow through M&A, they should develop a strategy that?

Answer 88

defines exactly what they are looking for.

Question 89

In order to integrate two organizations successfully, ?

Answer 89

similar corporate cultures are a prerequisite.

Question 90

Only through the cooperation of all parties involved in the M&A can friction be?

Answer 90

avoided and common goals reached.

Question 91

Furthermore, an analysis of the fundamental, strategic, and cultural fit between ?

Answer 91

the organizations is required.

Question 92

What Criteria Play a Role in the Selection of a Company for M&A?

Answer 92

-Fundamental fit
-Strategic fit
-Cultural fit

Question 93

Fundamental fit

The fundamental fit looks at the organizations’ willingness and readiness to merge. Basic indicators such as————————————————–are checked for compatibility. If the company to be bought is generally opposed to the acquisition, the integration process of the acquisition will most likely ————–.

Answer 93

size, history, and capabilities

fail

Question 94

Strategic fit

The strategic fit describes the strategic goals of the organization to be?

Answer 94

acquired and its management know-how in order to direct and implement these goals.

Question 95

Both organizations need to know their?

Answer 95

core competencies and strengths as well as weaknesses.

Question 96

Furthermore, the position in the market, the competitive environment, and related strategy play a major role in?

Answer 96

evaluating the strategic fit.

Question 97

Before an M&A is decided, the company should determine whether the strategies of the two organizations are?

Answer 97

compatible and could strengthen their market position.

Question 98

Cultural fit
The cultural fit includes:

Answer 98

questions regarding corporate cultures and their management.

Question 99

The areas to analyze are communication style, openness, management style, the ability to?

Answer 99

delegate and work in teams, and the mission, values, and vision of the organization.

Question 100

It is very difficult to integrate companies with very different organizational cultures. Even the integration of companies with similar cultures has to follow?

Answer 100

a detailed plan.

Question 101

Integration Strategies

The integration process of two organizations depends on?

Answer 101

the strength of their strategic interdependence and their need for organizational autonomy.

Question 102

Depending on how distinct these two aspects are with respect to?

Answer 102

each of these organizations, the acquired organization will either adapt fairly quickly to the new strategy, culture, and systems, or not at all.

Question 103

There are four integration scenarios:

Answer 103

Maintenance
Symbiosis
Absorption
Holding

Question 104

Maintenance

If merging companies have little strategic interdependence, maintenance (also called
——————–) is the strategy of ————.

Answer 104

preservation

choice

Question 105

Often, these companies operate in different businesses and are not dependent on?

Answer 105

each other’s products or services.

Question 106

Moreover, the acquired company has a high need for?

Answer 106

organizational autonomy, which means it is better to preserve the strategies, corporate cultures, and systems of both organizations separately.

Question 107

Integration occurs at a minimum level (e.g., common financial reporting), and both companies continue to?

Answer 107

operate as separate entities.

Question 108

Symbiosis

A strategy of symbiosis is recommended if?

Answer 108

the two companies show high strategic interdependence and have a marked need for organizational autonomy.

Question 109

In this case, the two companies are mutually dependent; certain processes and systems have to be integrated in order to?

Answer 109

increase the efficiency of the M&A.

Question 116

The companies can learn and benefit from each other’s strengths and build on?

Answer 116

the available capabilities.

Question 116

The symbiosis is?

Answer 116

a long and difficult integration process.

Question 116

Absorption

If merging companies are strategically very interdependent and have little need for?

Answer 116

organizational autonomy, one company may completely absorb the other company.

Question 116

For example,

Answer 116

a manufacturing company buys a laser producer in order to optimize its own production processes that require precision lasers. The acquired laser company happens to have a medical laser division.

Question 116

The integration process may happen fast and the company that is absorbed needs to be?

Answer 116

prepared to adopt the strategy, culture, and processes of the new owner or company it merged with.

Question 117

Holding

Holding describes a situation where the companies show?

Answer 117

little interdependence and need for organizational autonomy.

Question 117

In this situation, integrating the company does not bring any ———————————————–. The company thus holds the ———————— for a while and sells it in due course. The acquired company does not undergo any
————-.

Answer 117

additional benefit or advantage

new entity

changes

Question 118

This is of no extra value to the manufacturing company and will be held before?

Answer 118

being sold, maybe to another medical company.

Question 119

Strategic Alliances

A strategic alliance is formed when?

Answer 119

two companies share resources or activities to reach a common goal.

Question 120

There are many types of strategic alliances. One example is?

Answer 120

a research and development alliance where both companies benefit from sharing the costs for the research and development of a product.

Question 121

Types of Alliances
There are two types of strategic alliances in terms of the ownership structure:

Answer 121

equity alliances and non-equity alliances.

Question 122

An equity alliance describes the creation of a new entity, which belongs to both alliance partners. For example?

Answer 122

, two pharmaceutical companies invest together in a research institute.

Question 123

Non-equity alliances are partnerships that do not involve a claim to a property, such as?

Answer 123

a research institute.

Question 124

Non-equity alliances are merely?

Answer 124

contract bound.

Question 124

An example of a non-equity alliance is ?

Answer 124

The Leading Hotels of the World (LHW).

Question 125

LHW is an alliance of luxury hotels, resorts, and spas worldwide that offer member hotels certain services, such as?

Answer 125

providing marketing measures for the group, consultation, and a central reservation system.

Question 126

The expertise of LHW is quality analyses of the member hotels, which guarantee ?

Answer 126

hotel guests a specific quality standard.

Question 127

Motives for Alliances
The motives for alliances are similar to those of ————–. However, an alliance requires a much lower ——————————— from companies.

Answer 127

M&A

financial commitment

Question 128

Alliances benefit from ——————————–. The——————— provides
centralized marketing,
consultation,
reservation,
and quality inspection to all the member hotels.

Answer 128

economies of scale
LHW group

Question 129

This reduces, for example, the costs of printing advertising material for each?

Answer 129

individual hotel as this is provided by the LHW catalog of hotels or website.

Question 130

Access alliances offer companies distribution channels in foreign countries. They can sell ?

Answer 130

their products or services through distribution partners and do not have to invest in a direct sales force in these countries.

Question 131

The franchise system is a good example of ?

Answer 131

an access alliance of two partners.

Question 132

Companies like McDonald’s have expanded worldwide into all regions through?

Answer 132

a franchise system.

Question 133

Investing in all the countries they are represented in today would have been an impossible?

Answer 133

financial burden for the company.

Question 134

Complementary alliances consist of individual companies that provide?

Answer 134

one component each to the partnership.

Question 135

All components provided complement each other and form?

Answer 135

the final product or service.

Question 136

These alliances exist in?

Answer 136

complex markets in which individual companies are unable to provide all components or resources in order to be successful in the market.

Question 137

Complementary alliances are successful if the increase in?

Answer 137

benefits through the alliance outweighs the costs of coordinating the alliance partners.

Question 138

A complementary alliance for example?

Answer 138

could be with medical imaging companies, i.e., ultrasound, X-ray, MRI manufacturers, and a provider of digital hospital networks.

Question 139

All agree on a common interface in order to facilitate the integration of all systems and make it possible to?

Answer 139

digitally attach all images to the patients’ files

Question 140

How to Decide Whether to Buy, Ally, or Do-It-Yourself?

Deciding which strategic growth option is the best for the organization depends on various factors. One factor is?

Answer 140

how fast a company wants to grow, which describes the urgency to expand.

Question 141

Uncertainties in specific regional markets or technologies or market fluctuations also?

Answer 141

influence which strategy to pursue.

Question 142

The types of capabilities to be acquired, i.e.,?

Answer 142

soft capabilities (such as employees or know-how) or hard capabilities (such as machines or production facilities), play a major role in the strategic decision-making process.

Question 143

Finally, the degree of modularity of the capabilities influences?

Answer 143

the decision.

Question 144

Modularity?

Answer 144

This is the degree to which something can be separated into individual parts.

Question 145

How to Decide Whether to Buy, Ally, or Do-It-Yourself?

Answer 145

Urgency
Uncertainty
Type of Capabilities
Modularity of Capabilities

Question 146

Urgency
If the growth strategy has a high degree of urgency, the organic growth option will take too long. Therefore,?

Answer 146

an alliance or M&A would be the better, faster option.

Question 147

The Chinese auto manufacturer Geely could have invested a lot of time and money to ?

Answer 147

establish itself as a reliable car manufacturer in the European market.

Question 148

It would have been very difficult to build an image of high quality as a Chinese company. The decision to acquire Volvo allowed?

Answer 148

Geely to be present in the European market immediately and start gathering market information.

Question 149

Uncertainty
If you try to enter uncertain or fluctuating markets, alliances represent the —————————-. When forming an alliance, the partners usually —————————————–.

Answer 149

best option

share the risk

Question 150

No company is solely responsible for the success or failure of the business. If the alliance proves to be successful over time,——————————————————————-

Answer 150

the company has the option of acquiring the alliance partner.

Question 151

In an environment of high uncertainty, companies should refrain from?

Answer 151

expanding independently and making direct foreign investments as the investment costs are then fully borne by the company and lost if the development fails.

Question 152

The example of Helmerich & Payne?

Answer 152

clearly illustrates how a do-it-yourself (DIY) strategy fails in uncertain markets.

Answer 153

Helmerich & Payne lost all its investments to the government of Venezuela.

Answer 154

It would have been advisable to look for a possible alliance partner in Venezuela, thereby sharing the risk of the investment with a second company.

Question 155

Type of Capabilities

If a company needs hard capabilities (such as machines or a production facility) in order to?

Answer 155

grow, it would be advisable to acquire these through M&A.

Question 156

On the other hand, if the company needs soft capabilities (such as know-how) it would be best to?

Answer 156

take a DIY approach and hire employees with expertise.

Question 157

If the company tries to form an alliance with or acquire an organization that ?

Answer 157

has the soft capabilities, it might encounter integration problems as corporate cultures differ.

Question 158

The following example illustrates the types of capabilities that led to?

Answer 158

a strategic alliance between two quite different companies.

Question 159

After many years of partnership between?

Answer 159

the Swiss pharmaceutical company Roche and the California-based Genentech, Roche decided to acquire the company in 2009.

Question 160

The Genentech employees have a very different corporate culture from the conservative Swiss employees at Roche and enjoyed a great deal of freedom, such as?

Answer 160

the opportunity to spend time on their personal research projects one day a week.

Question 161

They describe themselves as —————————. However, over the years of the partnership,
————–has learned to accept the differences of ——————————.

Answer 161

cowboys

Roche
corporate cultures

Question 162

As Steven Burrill, chief executive officer of a San Francisco life sciences venture firm, observed in the San Francisco Chronicle:

Answer 162

“The assets of Genentech walk out in tennis shoes every night, and you hope they walk back in, in the morning”.

Question 163

Roche Agrees to Buy Genentech for $46.8 Billion

Answer 163

Roche Holding’s agreement on Thursday to acquire full ownership of Genentech for $46.8 billion is the third big drug industry merger this year.

Answer 164

But it is different from the other two – Pfizer’s $68 billion proposal to acquire Wyeth and Merck’s $41 billion deal with Schering-Plough – in crucial ways.

Answer 165

Pfizer and Wyeth are strangers, and Merck and Schering have a joint venture on cholesterol drugs but are otherwise not related.

Answer 166

And in both those deals, executives describe potential costs savings as a big benefit.

Answer 167

But Roche has owned a majority of Genentech since 1990, and it says cost savings, expected to be $750 million to $850 million a year, are not the main goal of the deal;

Answer 168

the goal is to improve coordination on product development. That could make it easier to integrate the two companies.

Answer 169

“It should be very easy because practically the entire portfolio is in common,”

Answer 170

said Viren Mehta, managing member of Mehta Partners, a consulting firm that advises drug companies and investors.

Answer 171

“These two companies have grown up closer than any two independent companies could be expected to be.”

Answer 172

And yet the challenge for Roche, a big Swiss company, will be in integrating the two companies without ruining Genentech’s

Answer 173

freewheeling and innovative culture and sending its top managers and scientists out the door. The culture clash between Roche and Genentech

Answer 174

could be greater than that between Pfizer and Wyeth or between Merck and Schering-Plough, all of which are traditional, big drug companies.

Answer 175

Laurence Lasky, a Silicon Valley venture capitalist who spent 20 years as a scientist at Genentech,

Answer 176

said he expected top managers of Genentech to leave Roche. “They’re Swiss and Genentech is a bunch of entrepreneurial California cowboys.”

Answer 177

Genentech, which was founded in 1976, said its executives would not comment.

Answer 178

After eight months of resistance, Genentech agreed Thursday to a deal in which Roche will pay $95 a share for the 44 percent of Genentech that it does not own.

Answer 179

The deal would end the independent existence of what is widely considered the world’s oldest and most successful biotechnology company.

Answer 180

Genentech shareholders must still tender their shares but they are expected to do so because a committee of Genentech’s directors recommended the deal.

Answer 181

The new price is higher than the $89 Roche offered in July and a bit higher than its offer last Friday of $93. While Genentech directors initially asked for $112,

Answer 182

they came to realize that price was unrealistic in the face of sharply falling world stock markets, according to a regulatory filing by Genentech.

Answer 183

Franz B. Humer, Roche’s chairman, said in an interview that he would meet with Arthur D. Levinson, Genentech’s chief executive, and Genentech’s top scientists.

Answer 184

One issue, he said, would be to come up with an alternative to the stock options that have been a big financial incentive for Genentech employees.

Answer 185

Roche has said Genentech’s research and early clinical trial operations will retain autonomy so the culture can be preserved.

Answer 186

It has also said the combined United States commercial business of both companies will be based at Genentech’s headquarters in South San Francisco, Calif.,

Answer 187

rather than in Nutley, NJ, where Roche’s American business is based. The drug portfolios of Roche will be sold under the Genentech brand in the United States.

Answer 188

Pfizer and Merck have said their acquisitions will move them more into drugs made by biotechnology,

Answer 189

which have more protection from generic competition than the chemical-based drugs companies now sell.

Answer 190

Roche goes further, saying its purchase of Genentech will make it the largest biotechnology company in the world.

Answer 191

Pfizer and Merck will also get other diversification from their deals, picking up vaccines in the case of Pfizer and consumer

Answer 192

products in the cases of both Pfizer and Merck. Some big drug companies have been hoping that consumer products, generic drugs, or

Answer 193

medical devices might shield them from the storms buffeting their industry, with patent expirations, pricing pressures, and tougher regulatory hurdles.

Answer 194

Roche, by contrast, says it has no interest in generic drugs or consumer products and wants to stick to its specialty.

Answer 195

“You go deep rather than broad,” Bill Burns, the head of Roche’s pharmaceutical business, said in an interview last month.

Answer 196

The one exception is that Roche has become a leader in diagnostics, which increasingly will be used to tell which patients should receive a drug.

Answer 197

Roche sells many of its own drugs and has others in development, such as ones for rheumatoid arthritis and diabetes.

Answer 198

But Roche’s three best-selling drugs – the cancer medicines Avastin, Herceptin, and Rituxan – come from Genentech.

Answer 199

And many of the late-stage clinical trials being conducted by Roche involve Genentech products. Roche’s main growth could come from extended use of Avastin.

Answer 200

Roche now has first dibs on marketing rights outside the United States for drugs developed by Genentech.

Answer 201

That arrangement was set to expire in 2015, another reason Roche wanted to own the whole company.

Question 202

Modularity of Capabilities

In the event the capabilities that the company is seeking can be separated into?

Answer 202

smaller parts, i.e., the capabilities are highly modular, alliances are the best option to pursue.

Question 203

Joint vJoint ventures can, for example, be used to ?

Answer 203

combine required capabilities with those existing in the company in order to create more value. The other parts of the companies are managed as usual and operate in their established markets.entures can,

Question 204

An acquisition might lead to problems as the entire operation will have to be?

Answer 204

acquired, which might lead to integration problems.

Question 205

If capabilities are modular, it might be advantageous to do-it-yourself as the company could build?

Answer 205

one separate department to develop the component.

Question 206

The advantage of the modularity is that only part of ?

Answer 206

the organization is affected by and involved in the new development.

Question 207

Amazon did this when?

Answer 207

it developed the Kindle.

Question 208

The company still operated as an online store as usual, but it founded?

Answer 208

a separate department to develop the Kindle.

Question 209

The decision regarding which strategic growth option to pursue also depends on?

Answer 209

other factors, such as finding a suitable partner to work with, which is often difficult.

Question 210

In the case of non-profit organizations or charities, a change of ownership is difficult to?

Answer 210

execute, which limits their growth options to forming alliances and do-it-yourself.

Question 211

Companies have several growth options.

Answer 211

The organic growth option,
do-it-yourself,
offers the advantage that the company develops its own competency in the field and can continue to pursue its strategy.

Question 212

However, organic growth takes time and requires ?

Answer 212

an innovative and entrepreneurial corporate culture.

Question 213

Mergers and acquisitions are another growth option————————–. The various motives for M&A are strategic motives (such as the development of ————————), financial motives (such as reducing the ———————-), or personal\/management motives (such as short-term —————————–).

Answer 213

for companies

new markets

tax burden
growth goals

Question 214

When choosing a company to acquire or to merge with, companies should analyze the?

Answer 214

fundamental, strategic, and cultural fit.

Question 215

The fit often determines the success of the M&A. The integration of the two companies is challenging and depends on?

Answer 215

their strategic interdependence and their need for organizational autonomy.

Question 216

Another option for companies to grow is through ?

Answer 216

a strategic partnership or alliance.

Question 217

Alliances can be equity alliances, which involve the investment of both partners in?

Answer 217

a new entity, or non-equity alliances, which are contractual agreements.

Question 218

Alliances are formed for similar reasons as M&A as companies try to benefit from?

Answer 218

economies of scale, access new markets, or complement their product offers.

Question 219

Which growth option a company chooses depends on various factors. The urgency of the expansion plays?

Answer 219

a major role as well as possible uncertainties in the markets or technologies.

Question 220

Furthermore, the types of capabilities a company is looking for,————————-, and the —————– of these influence the strategic decision. Finally, the availability of a suitable partner plays a role in the——————————-.

Answer 220

soft or hard

modularity

decision to grow