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The Examiners Report for the June 2013 sitting of AQA BUSS4 makes a very interesting comment.
It suggests that students who write a suitable introduction to each of their two essays can contribute to a better-performing and, therefore, higher-scoring essay.
This makes perfect sense and it follows from something that we emphasis on our exam coaching workshops for BUSS4. Good BUSS4 essays start with a plan. Good essays know what they are trying to argue.read more...»
I've been updating my records of large takeovers and mergers in recent years and looking at whether shareholder value was created or destroyed by each deal.
One takeover which strikes me as being highly successful is that of YouTube by Google. Here is some evidence that supports that view.read more...»
Usain Bolt will have a new boss to impersonate now. US billionaire John Malone's cable group, Liberty Global, has agreed to buy the UK's Virgin Media in a cash and stock deal worth $23.3bn (£15bn). The takeover will create the world's largest broadband company (with 25 million customers in 14 countries) and a stronger competitor for BSkyB in the UK which is the clear market leader with over 10 million household subscribers.read more...»
HMV's previous attempt at a strategy of diversification has now ended after it agreed to dispose of its business units involved in live music and entertainment. Lots of evidence in this case study about how risky diversification can be. HMV paid £46m to acquire MAMA Group back in 2010:
It sounds like an odd combination - mixing Irn-Bru with Fruit Shoot. But you never know - it might work. Shareholders in the firms that make Irn-Bru (AG Barr) and Fruit Shoot (Britvic) will be hoping that the combination of their respective product portfolios will taste a little better after a £1.5bn merger which has been agreed today.
The merger will be bad news for some employees at the two businesses. As part of the merger plan up to 500 jobs are expected to be lost as the combined business aims to achieve £35m of annual cost-saving by cutting the combined headcount of 4,000 workers by 8-12%.
It is claimed that the aim of the merger is to "create a world-class soft drinks company" and, not surprisingly, the management who will lead the combined firm are pretty positive about the strategic rationale for the merger:
"AG Barr and Britvic are a fantastic fit with complementary strengths and we will benefit from very significant synergies," claims Gerald Corbett, the chairman of Britvic who will continue in the same role at the combined company.
The football business has a history of helping investors to lose money. And now it seems that the shareholders in Nike have been hit hard by an investment that simply hasn't paid off.read more...»
Will this prove to be the last takeover of a major care rental firm in the US? After five years of trying, market-leading car rental company Hertz has bought its rival Dollar Thrifty for $2.3bn (£1.5bn). However, as this article in the Guardian explains, this may be the last significant takeover in the car rental sector to be allowed by US competition regulators. Why? Because the market is now dominated by just three firms.read more...»
Back in 2009 by the Competition Commission told BAA that it must reduce its stranglehold on the UK aviation market. Part of the instruction was that BAA must dispose of Gatwick Airport (which it sold in December 2009) and Edinburgh Airport (which was sold by BAA in April 2012). However, BAA has been trying to hang onto Stansted, taking the decision through the courts in a long drawn-out process. Now that process is over - it has to sell the airport.read more...»
This is a good example of significant cost synergies being squeezed from a major takeover. Google, which acquired Motorola Mobility (a manufacturer of mobile phones) for $12.5bn, has decided to make 20% of Motorola’s workforce redundant. That’s around 4,000 employees who will lose their jobs.read more...»
Microsoft’s takeover of AQuantive for $6.3bn in 2007 must now go down as one of the least successful acquisitions in recent history. In its most recent quarterly results, Microsoft has announced that it is “writing down” the value of its investment in AQuantive by $6.2bn (i.e. just about all of it), to reflect the significantly lower value of the business just five years on.read more...»
News has been released this afternoon that Walgreen, a US company that operates 7,890 pharmacies across the United States, is buying a 45% stake in Boots, which has more than 3,300 health and beauty retail stores in the UK and 11 countries around the world, a strong internet retail presence, a manufacturing facility in Nottingham, as well as a wholesale business which supplies pharmacies and doctors in 21 countries. The deal, which is being reported as a MERGER rather than a takeover, has been under discussion for 18 months, although it still has to be agreed by regulators. Walgreen also have the option to take the remaining 55% of the shares in the next three years.read more...»
How and why to plan your essays in BUSS4read more...»
Starbucks has just made its largest-ever acquisition, paying $100m for San Francisco-based Bay Bread. The acquisition is part of Starbuck’s strategy of diversifying its product offering and boosting the importance of food at its 17,400 outlets worldwide.read more...»
Our final business studies revision clinic takes place on Monday evening at 9pm - focusing on AQA BUSS4. Please login using your Facebook or Twitter account to participate. A full transcript of the session will be available on this blog entry once the clinic has finished.read more...»
Students can be forgiven for over-researching takeovers and mergers for Section A - an inevitable response given the nature of pre-release materials. However, it is important to remember that the Section B essay has exactly the same number of marks (40) as Section A. An essay of the same quality is required and it is important that students do it justice. Time management in particular is crucial - the Section B essay mustn’t be rushed.
Arguably, Section B can be harder for students because they are unlikely to have covered the remaining specification (i.e. everything other than M&A) to the same degree and their research evidence for Section B might feel a bit “thinner”!
Question-spotting is never to be recommended. However, for Section B, I do feel that students might usefully focus on a smaller number of core topics which can be relatively easily linked together in a logical chain of argument, and for which relevant research is readily available.read more...»
This streamed revision presentation outlines some evidence of the impact on, and reaction of, stakeholders to takeovers and mergersread more...»
This streamed revision presentation considers the motives for takeovers and mergers and how these link with corporate strategyread more...»
This streamed revision presentation examines the problems of takeovers and mergers including difficulties integrating businesses successfullyread more...»
This streamed revision presentation considers the factors influencing the success of takeovers and mergersread more...»
This streamed revision presentation looks at the impact of takeovers andmergers on the performance of the businesses involved.read more...»
This revision presentation outlines the reasons why governments might support or intervene in takeovers and mergersread more...»
Here is a recent example of a classic horizontal integration. Two UK wholesalers - Booker and Makro are being brought together in a £139.7m takeover. A good example to use to help illustrate the concept of horizontal integration, although it is far to early (obviously) to know whether the combination of these two businesses will deliver shareholder value to the investors in Booker, who will take control of their small rival.read more...»
Back in January 2012, the administrators of Blacks Leisure agreed to sell the remaining 300 stores to JD Sports for around £20million. Blacks Leisure was one of several high profile retail failures at the end of 2011, but JD Sports obviously saw some potential in the takeover. Five months later, it looks like the takeover might be proving to be less attractive than management first thought.read more...»
It is a statistic that is widely supported by research and is also likely to be used by 000’s of students as they write about the likely success or failure of a takeover or merger:
“70% + of takeovers and mergers destroy value…”
In other words – most takeovers and mergers fail. But is this the only way to measure success or failure?read more...»
Students writing essays about takeovers and mergers need to be familiar with some key terminology. Here are some key terms which are worth understanding and using when writing about M&A:read more...»
Takeovers and mergers: Every merger deal that has ever occurred (explained in fewer than 1000 words)
With just two weeks to go before you wrestle with the BUSS4 paper no doubt you will be feeling somewhat saturated by the volume of information you are attempting to absorb as your revision peaks (or starts!)
It is my experience of this time of year that BUSS4 students run the risk of becoming so obsessed with remembering specific content (e.g. data & stats) that they neglect the context, and often very simple underlying principles, that explain the rationale behind business activity. Understanding why businesses choose to merge is vitally important as it is their specific motives which drive the actions that they take and the decisions that they make.
Thus, if you can appreciate the motives behind a merger I believe you are halfway towards making sense of any question that section A throws your way on the day of the exam. Understanding the reasons why businesses make the strategic choice to merge should be the starting point for any answer. Crack this and you have a great chance of picking up the bulk of the marks. “It can’t be that easy I hear you say?” The answer to your question is “yes it is” and I’m about to make it a whole lot easier!read more...»
We produced this sample essay to a exemplar BUSS4 essay on the importance of integration planning in determining the success of a takeover or merger. The essay title was:
“To what extent is integration planning the most important factor determining the success of a takeover or merger?”
The essay is provided below together with the marks and comments from an experienced AQA BUSS4 examinerread more...»
BUSS4 students really need to read this one - it offers good, strong evidence of the problems of takeovers and mergers including difficulties integrating businesses successfully. Last year Hewlett Packard bought Autonomy, a Cambridge software company, for $10bn. This year they have a 31% fall in profits and plan to cut 27,000 jobs (about 8% of their workforce) by end of 2014 in order to reduce costs by up to $3.5bn (£2.2bn) a year. As many business reports say, the move was part of a “productivity initiative designed to simplify business processes” and is down to their inability to keep up with products such as the iPad which eats into HP’s laptop sales.
HP haven’t announced where those staff cuts will be made yet, but a key news announcement yesterday was that Mike Lynch, who founded Autonomy and built it from a small start up founded with a loan of £2,000 from a man in a pub to the UK’s leading technology company, is to be replaced. HP seems to offer a classic case of Charles Handy’s Role culture with layers of bureaucracy which, critics say, has stifled the entrepreneurial spirit of Autonomy’s Power culture which focused on Mike Lynch who was used to making his own decisions and still based on a simple start-up structure. A BBC Business Correspondent reports that
“His drive and entrepreneurial flair was fundamental to the growth of the firm. Although many people found him difficult and demanding to work for, he was held in awe by rank-and-file staff. (compare Steve Jobs - similar comments are made about him.) That’s why Autonomy’s 300 Cambridge staff are worried about the future. One man, who declined to be identified, said: “Without Mike, we have a grim outlook. He was the reason many people work here. A brain drain of senior people is already under way.”
In that brain drain 20% of Autonomy’s staff have recently left including the President and Chief Finance Officer. The Independent reports on the culture clash saying that
“Autonomy hasn’t been performing the way the computer giant had hoped. HP wants big deals, sealed quickly, and the Autonomy style of working just hasn’t fitted in” - this article is really worth reading for its analysis of the problems in this takeover and others in which the entrepreneurial flair which brought small businesses to the attention of large ones has caused difficulties in achieving the business growth and synergies which were dreamed of.
Other useful resources on this story - a BBC video report examining the reasons for HP’s diffuculties and the management style at Autonomy, and a profile of Mike Lynch from The Telegraph. As Lord Sutch would say, business studies gold dust!
A fascinating story has appeared on the BBC News website featuring Jerry (of Ben & Jerry’s) as he explains the extent to which, after being taken over by Unliever in 2000, they have been able to bring their values to the vast conglomerate.read more...»
The Tata acquisition of Jaguar Land Rover is a superb example to include in research notes on takeovers and mergers. At the time (early 2008), Tata’s investment in JLR seemed to be poorly timed and there were many critics who questioned the strategic logic of the move as well as its timing. Shortly after the takeover, demand in the global market for luxury cars collapsed as a result of the financial crisis and Tata was forced to refinance to support its investment.
Several years later, however, the takeover appears to be a compelling example of a successful acquisition which is generating substantial shareholder value for Tata as well as continued support from JLR’s many stakeholder groups in the UK.read more...»
One of the major difficulties with the BUSS4 paper is managing time effectively. Students- understandably under pressure- regularly neglect to take the time to understand the question before they start writing. They are unsure how best to address the essay and so try to reproduce their text book, hoping that some of their knowledge will hit the target. Another error from those who have learned the syllabus, and/or built up a vast portfolio of information on the research theme, often feel obliged to ‘show off’ in the exam room. Rather than scoring highly, however, their essays tend to read like a list of bullet points, interspersed with ‘stories’ about businesses they have studied.read more...»
As you have doubtless been told numerous times, success in BUSS4 depends on having carried out your own research - this year, with a particular focus on mergers and acquisitions. Did you realise you cannot get a good grade in the first part WITHOUT explicitly using your research in your response?read more...»
Preparing for the BUSS4 exam involves getting yourself right mentally. Many students underestimate the influence that attitude has in determining how well they perform. They focus on learning terminology and concepts and on building a research file but don’t spend enough time getting their psychological approach right. Here are some thoughts on how you can into the right frame of mind to do your best in BUSS4.read more...»
Hot on the heels of the Vue takeover of Apollo Cinema Group, here is another significant takeover in the UK leisure sector. This one will certainly attract the attention of the competition regulators. Two of the UK’s largest operators of casinos are being brought together as Rank buys Gala Coral’s casino business for £205m.read more...»
News of a £20m takeover here which will be particularly relevant to colleagues and students who joined us recently for the BUSS4 revision workshops at cinemas around the UK…read more...»
For the BUSS4 exam this June, it is useful to understand why a merger may fail to work and a retrospective look at BMW’s acquisition of Rover back in 1994 provides a good illustration of several possible pitfalls.read more...»
The collapse of Clinton Cards has been widely predicted for some time as its new CEO (recruited from Starbucks UK) attempted to achieve a turnaround and restructuring in recent months. Clinton’s administration is one of the biggest UK retail failures wince Woolworths and much of the press analysis will focus on the competitive pressures that the retail chain faced from online operators like Moonpig and Funky Pigeon, as well as the effect of weak consumer confidence and spending.
Eagle-eyed A2 students, however, will also spot that a strategic mistake back in 2004 is at the root of many of Clinton Cards problems. The mistake - buying Birthdays Group in 2004.read more...»
This blog entry hosts an online revision clinic for students preparing for AQA BUSS4 Section A which will start at 9pm and last for an hour. Students who wish to get live support from the tutor2u team will be able to login to the clinic on this blog entry; please use your FB, Twitter or OpenID details to login.read more...»
Cable and Wireless Worldwide has 20,500km of fibre-optic cables in the UK, owning this would mean that Vodafone doesn’t have develop a network from scratch, estimated at £5bn. Vodafone like other mobile operators needs additional capacity to cope with the increased use of smartphones - downloads of music, video, photos etc.read more...»
This M&A briefing note provides an overview of the merger of British Airways and Iberia which led to the formation of a new firm - International Airlines Group (“IAG”)read more...»
This is an idea I’ve developed following the recent tutor2u BUSS4 revision workshops for marking and feeding back to students when building essay skills. Like many of my A2 Business-teaching counterparts, I spent a large proportion of the Easter break marking BUSS4 mock essays. In a bid to help my students develop their paragraph writing skills, I made a note of the common areas for improvement and summarised them into seven key points for writing the ‘perfect’ paragraph:read more...»
Cross border acquisitions allow a firm to reach new markets, or to add to their portfolios of brands. This morning’s business stories included Audi’s announcement that it has taken over the Italian Ducati Compnay.read more...»
This is desperately bad news for the employees and local community involved, but it serves as a good example for students to understand the nature of cost synergies in a takeover or merger. This local newspaper report covers the announcement of hundreds of job losses at the headquarters of BMI, which has recently been acquired by British Airways from Lufthansa.read more...»
The Facebook takeover of Instagram for $1bn has generated a huge amount of media interest. The takeover is a great topical example for A2 business students looking at takeovers, and these video clips provide all they could possibly need in terms of looking at the motives for the deal and also the potential revenue synergies for Facebook.read more...»
The revenues achieved in 2011 by RIM, the owner of BlackBerry, fell by 25% compared with 2010. It looks like customers have fallen out of love with BlackBerry. Apple, HTC, Samsung and other operator have grabbed a large share of BlackBerry’s customer base, so it must be that BlackBerry has seen its competitiveness deteriorate.
This excellent video from the FT examines some key strategic issues facing Rim and its BlackBerry brand. Could the business be a takeover target now that the firm is trying to achieve a turnaround? But, if so, who would want to buy it? Can new product development save BlackBerry before it loses further market share in key markets like the US? A fantastic lesson resource for A2 students…read more...»
Simply stunning. There’s no other way to describe the takeover by Facebook of Instagram…for a cool $1bn. This takeover has really made the technology market sit up and notice.read more...»
This revision presentation provides an overview of the topic of emerging markets. It highlights some examples of how businesses have pursued a growth strategy in emerging markets and also how developed economies have seen investment coming in the opposite direction. A brief overview of the methods and benefits/drawbacks of international expansion is also provided.read more...»
Chinese companies have historically been characterised as low-cost, low-quality producers of manufactured goods. However, there is growing evidence of a new breed of Chinese company emerging that is able to compete on the world stage.read more...»
A great article here for students researching the competitive environment in the consumer electronics industry. Students should certainly be familiar with the strategies of Apple, Samsung, Nokia, Sony and others. But have they heard of Huawei? It looks like they might soon, if Huawei is successful in its objective of grabbing a significant share of the smartphone and tablet markets.read more...»
Buried in this article about generating investment in Manchester are some gems of examples of why government might encourage foreign takeovers of British business. The article starts with an unlikely visit by Jim O’Neill of Goldman Sachs to the Manchester City stadium.
Famous for coining the term BRICS to describe the major emerging economies, O’Neill is equally famous as the leader of the Red Knights, who failed in their bid to buy Manchester United from the Glazer family in 2010 - the Glazer’s are accused by United supporters of failing to put enough cash into the club since they took it over. Sheikh Mansour, of Abu Dhabi, has poured money into Manchester City since he bought it in 2008 and there are ambitious plans to regenerate the whole area around the stadium.read more...»
At the recent A2 business studies revision workshops we focused on the need for students to use independent research evidence to help develop their essay points.
One analogy we used was thinking of examples (evidence) as the seasoning in an essay hot-pot or casserole. The seasoning is there to make the meal taste great; but you also need the raw ingredients! An essay point that is developed to a good depth will always score better with the examiners than answers which are littered with too many examples.
Let’s take a look at how we can use a recent business example to help develop a point.read more...»
International Airlines Group, IAG or BA/Iberia has secured EU approval for its purchase of BMI from Lufthansa. The purchase price is c. £172.5m. The quid quo pro is the insistence by the EU regulators that IAG gives up 14/56 of BMI’s slots at Heathrow.read more...»
Coty’s £6bn bid for its close competitor Avon (which may soon go hostile if Avon doesn’t play ball) looks like it might turn into a ding-dong battle between the two firms. This would be ironic given that Avon is best-known for its ding-dong door bell commercials from the 1970s and 1980’s. There is lots in the press about the bid - this article from Reuters provides some useful background.. For an alternative take on the deal, you can;t beat the Guardian’s Kipper Wiiliams who sums it up nicely here.
The Coty bid looks a little opportunistic to me. Avon has been without a CEO for several months and their share price has drifted lower over a prolonged period. This might suggest that Coty sees both a strategic rationale to the takeover as well as a financial motive (buying a major competitor whilst its share price is unusually low). As always, the decision will be made by the shareholders who might want to see whether Avon can bring in a CEO capable of restoring their shareholder value.
Alternatively, the Avon Board may decide to recommend a higher offer from Coty. Interestingly, Coty has offered to review its offer (i.e. contemplate a higher price) if Avon allows Coty to begin a formal due diligence process. This looks a bit like a direct sales trick that Avon might appreciate - once you have a foot in the door, it’s much easier to close the sale!
Students researching AQA BUSS4 M&A for 2012 may well come across the private equity firm Terra Firma run by Guy Hands. They were the investors who got their fingers burned when investing £3bn in EMI, only to have to sell it for about half that price a few years later. Well. Terra Firma are back in the market - they have just completed the takeover of the Garden Centre Group, owners of brands like Wyevale and Blooms.read more...»
Looking for something a little different to help support teaching of BUSS4 M&A? Here is a 20 clue crossword that you could set as a homework or team research task. I’ve also provided a matching game activity using the same clues…read more...»
In my previous life in mergers and acquisitions, I was fortunate to work alongside Dr John Wells (before he moved back to Harvard Business School) as we negotiated takeovers, investments, strategic partnerships and the like for a quoted travel company.
It was a chaotic period (right in the middle of the dot-com boom) and we probably had more misses than hits. However I always remember that period for a three-word phrase that became our mantra as we evaluated the best options for the Board.
The phrase was simply “strategy is choice”. Simple, and extremely powerful for students who need to write about external growth strategy.read more...»
A great example to use here which combines takeovers/mergers and also Ansoff’s Matrix. Starbucks has used a recent takeover as the platform for the launch of a new store concept which it hopes will generate sales and profit growth outside of the core coffee market.read more...»
We’re now into our AQA BUSS2 and BUSS4 revision workshop tour and it’s really encouraging how many students and teachers are including Twitter as part of the their revision and teaching support package. The BUSS4 hashtag (#buss4) is well worth following so that you can see new resources being shared by the AQA business community. It’s also a great way for students to ask short questions or request help as they embark on their research activities. Here is the link to the hashtag and also to our tutor2u twitter account which features BUSS4 postings on a daily basis.read more...»