Impact of COVID 19 on Innoviva Inc Casr Discussion The company is Innoviva, IncYou will analyze the assigned Company’s current condition. You will use the

Impact of COVID 19 on Innoviva Inc Casr Discussion The company is Innoviva, IncYou will analyze the assigned Company’s current condition. You will use the text chapters 7 through 9 as your framework for the analysis, and will incorporate information from external sources including the company and other credible sites. Your deliverable will be presented in APA format, will include appropriate topical headings to organize and segment the paper, with correctly formatted citations and references. Minimally the report will include the following: Merger and Acquisitions Chapter 7
Merger and Acquisition Strategies
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1–1
Learning Objectives
Studying this chapter should provide you with
the strategic management knowledge needed to:
1. Explain the popularity of merger and acquisition strategies in firms
competing in the global economy.
2. Discuss reasons why firms use an acquisition strategy to achieve
strategic competitiveness.
3. Describe seven problems that work against achieving success when
using an acquisition strategy.
4. Name and describe the attributes of effective acquisitions.
5. Define the restructuring strategy and distinguish among its common
forms.
6. Explain the short- and long-term outcomes of the different types of
restructuring strategies.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–2
Mergers, Acquisitions, and Takeovers:
What are the Differences?
• Merger
– Two firms agree to integrate their operations
on a relatively co-equal basis.
• Acquisition
– One firm buys a controlling, or 100%, interest in
another firm with the intent of making the acquired
firm a subsidiary business within its portfolio.
• Takeover
– An acquisition in which the target firm did not solicit
the acquiring firm’s bid for outright ownership.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–3
Reasons for Acquisitions and Problems in
Achieving Success
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7–4
Reasons for Acquisitions
Learning and
developing
new capabilities
Reshaping firm’s
competitive scope
Increased
diversification
Increased
market power
Overcoming
entry barriers
Making an
Acquisition
Lower risk than
developing new
products
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Cost of new
product
development
Increase speed
to market
7–5
Acquisitions: Increased Market Power
• Factors increase market power when:
– there is the ability to sell goods or services above
competitive levels.
– costs of primary or support activities are below those
of competitors.
– a firm’s size, resources and capabilities gives it a
superior ability to compete.
• Acquisitions intended to increase market power
are subject to:
– regulatory review
– analysis by financial markets
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7–6
Acquisitions: Increased Market Power (cont’d)
• Market power is increased by:
– horizontal acquisitions of other firms in
the same industry.
– vertical acquisitions of suppliers or
distributors of the acquiring firm.
– related acquisitions of firms in related
industries.
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7–7
Market Power Acquisitions
Horizontal
Acquisitions
• Acquisition of a firm in the same
industry in which the acquiring firm
competes increases a firm’s market
power by exploiting:
– Cost-based synergies
– Revenue-based synergies
• Acquisitions with similar characteristics
result in higher performance than those
with dissimilar characteristics.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–8
Market Power Acquisitions (cont’d)
Horizontal
Acquisitions
Vertical
Acquisitions
• Acquisition of a supplier or
distributor of one or more of the
firm’s goods or services
– increases a firm’s market power
by controlling additional parts of
the value chain.
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7–9
Market Power Acquisitions (cont’d)
Horizontal
Acquisitions
Vertical
Acquisitions
Related
Acquisitions
• Acquisition of a firm in a highly
related industry
– because of the difficulty in
attaining synergy, related
acquisitions are often difficult to
implement.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–10
Overcoming Entry Barriers
• Entry Barriers
– Factors associated with the market or with the firms
operating in it that increase the expense and difficulty
for new firms in gaining immediate market access.
• Economies of scale
• Differentiated products
• Cross-Border Acquisitions
– Acquisitions made between firms with headquarters in
different countries:
• are often made to overcome entry barriers.
• can be difficult to negotiate and operate because of the
differences in foreign cultures.
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7–11
Cost of New-Product Development
and Increased Speed to Market
• Internal development of new products is often
perceived as a high-risk activity.
– Acquisitions allow a firm to gain access to new and
current products that are new to the firm.
– Returns are more predictable because of the acquired
firms’ past experience with its products.
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7–12
Lower Risk Compared
to Developing New Products
• An acquisition’s outcomes can be estimated
more easily and accurately than the outcomes
of an internal product development process.
– Managers may view acquisitions as lowering risk
associated with internal ventures and R&D
investments.
– Acquisitions may discourage or suppress innovation.
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7–13
Increased Diversification
• Using acquisitions to diversify a firm is the
quickest and easiest way to change its portfolio
of businesses.
• Both related diversification and unrelated
diversification strategies can be implemented
through acquisitions.
• The more related the acquired firm is to the
acquiring firm, the greater is the probability that
the acquisition will be successful.
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7–14
Reshaping the Firm’s
Competitive Scope
• An acquisition can:
– reduce the negative effect of an intense rivalry on a
firm’s financial performance.
– reduce a firm’s dependence on one or more products
or markets.
• Reducing a firm’s dependence on specific
markets alters the firm’s competitive scope.
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7–15
Learning and Developing
New Capabilities
• An acquiring firm can gain capabilities that
the firm does not currently possess:
– special technological capability
– a broader knowledge base
– reduced inertia
• Firms should acquire other firms with different
but related and complementary capabilities in
order to build their own knowledge base.
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7–16
Problems in Achieving
Acquisition Success
Integration
difficulties
Inadequate
target evaluation
Too large
Managers
overly focused on
acquisitions
Problems
with
Acquisitions
Too much
diversification
Extraordinary debt
Inability to
achieve synergy
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–17
Problems in Achieving Acquisition Success:
Integration Difficulties
• Integration challenges include:
– melding two disparate corporate cultures.
– linking different financial and control systems.
– building effective working relationships (particularly
when management styles differ).
– resolving problems regarding the status of the newly
acquired firm’s executives.
– loss of key personnel weakens the acquired firm’s
capabilities and reduces its value.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–18
Problems in Achieving Acquisition Success:
Inadequate Evaluation of Target
• Due Diligence
– The process of evaluating a target firm for acquisition.
• Ineffective due diligence may result in paying an excessive
premium for the target company.
• Evaluation requires examining:
– financing of the intended transaction.
– differences in culture between the firms.
– tax consequences of the transaction.
– actions necessary to meld the two workforces.
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7–19
Problems in Achieving Acquisition Success:
Large or Extraordinary Debt
• High debt (e.g., junk bonds) can:
– increase the likelihood of bankruptcy.
– lead to a downgrade of the firm’s credit rating.
– preclude investment in activities that contribute to the
firm’s long-term success such as:
• research and development
• human resource training
• marketing
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7–20
Problems in Achieving Acquisition Success:
Inability to Achieve Synergy
• Synergy
– When assets are worth more when used in
conjunction with each other than when they are
used separately.
• Firms experience transaction costs when they
use acquisition strategies to create synergy.
• Firms tend to underestimate indirect costs
when evaluating a potential acquisition.
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7–21
Problems in Achieving Acquisition Success:
Inability to Achieve Synergy (cont’d)
• Private synergy
– When the combination and integration of the
acquiring and acquired firms’ assets yields
capabilities and core competencies that could not be
developed by combining and integrating either firm’s
assets with another firm.
• Advantage: it is difficult for competitors to
understand and imitate.
• Disadvantage: it is also difficult to create.
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7–22
Problems in Achieving Acquisition Success:
Too Much Diversification
• Diversified firms must process more information
of greater diversity.
– Increased operational scope created by diversification
may cause managers to rely too much on financial
rather than strategic controls to evaluate business
units’ performances.
– Strategic focus shifts to short-term performance.
– Acquisitions may become substitutes for innovation.
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7–23
Problems in Achieving Acquisition Success:
Managers Overly Focused on Acquisitions
• Managers invest substantial time and energy
in acquisition strategies in:
– searching for viable acquisition candidates.
– completing effective due-diligence processes.
– preparing for negotiations.
– managing the integration process after
the acquisition is completed.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–24
Problems in Achieving Acquisition Success:
Managers of Target Firms
• Managers in target firms:
– may begin to operate in a state of virtual suspended
animation during an acquisition.
– may become hesitant to make decisions with longterm consequences until negotiations have been
completed.
– may develop a short-term operating perspective and
a greater aversion to risk.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
7–25
Problems in Achieving Acquisition Success:
Acquiring Firm Becomes Too Large
• Additional costs of controls may exceed the
benefits of the economies of scale and
additional market power.
• Larger size may lead to more bureaucratic
controls.
• Formalized controls often lead to relatively rigid
and standardized managerial behavior.
• The firm may produce less innovation.
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7–26
Problems in Achieving Acquisition Success:
Acquiring Firm Becomes Too Large
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7–27
Effective Acquisition Strategies
Complementary
Assets /Resources
Buying firms with assets that meet
current needs to build competitiveness.
Friendly
Acquisitions
Friendly deals make integration go more
smoothly.
Careful Selection
Process
Deliberate evaluation and negotiations
are more likely to lead to easy
integration and building synergies.
Maintain Financial
Slack
Provide enough additional financial
resources so that profitable projects
would not be foregone.
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7–28
Attributes of Effective Acquisitions
Attributes
Results
Low-to-Moderate Debt
Merged firm maintains
financial flexibility
Sustained Emphasis
on Innovation
Continue to invest in
R&D as part of the firm’s
overall strategy
Flexibility
Has experience at
managing change and is
flexible and adaptable
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7–29
Restructuring
• A strategy through which a firm changes its set
of businesses or financial structure.
– Failure of an acquisition strategy often precedes a
restructuring strategy.
– Restructuring may occur because of changes in the
external or internal environments.
• Restructuring strategies
– Downsizing
– Downscoping
– Leveraged buyouts
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7–30
Types of Restructuring: Downsizing
• A reduction in the number of a firm’s employees
and sometimes in the number of its operating
units.
– May or may not change the composition of
businesses in the firm’s portfolio.
• Typical reasons for downsizing:
– Expectation of improved profitability from cost
reductions
– Desire or necessity for more efficient operations
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7–31
Types of Restructuring: Downscoping
• A divestiture, spin-off or other means of
eliminating businesses unrelated to a firm’s core
businesses.
• A set of actions that causes a firm to strategically
refocus on its core businesses.
– May be accompanied by downsizing, but not the
elimination of key employees from its primary
businesses.
– Results in a smaller firm that can be more effectively
managed by the top management team.
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permitted in a license distributed with a cer…
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