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MBA Programme

Period: P3
May/June 2019

Mergers & Acquisitions, Alliances and


Corporate Strategy (MAACS)

Professor : Philipp Meyer-Doyle Assistant : Vivian Tan
E-mail : philipp.meyer@insead.edu Email: vivian.tan@insead.edu
NW 540; Ext 5106

Course Outline
Most large companies today consist of multiple business units that are managed through a
corporate center; a firm’s definition of its corporate strategy and the choice of its scope are
therefore of great importance. Mergers and acquisitions (M&A), alliances and joint
ventures are critical means of altering and achieving the firm’s desired scope. At the same
time M&A, alliances and joint ventures have become a major area for advisory services.
Hence, managers, financial advisors/investment bankers, and strategy consultants require
a thorough understanding of corporate strategy, mergers & acquisitions, and alliances.
This course explores the challenges that firms face when choosing their corporate
strategy to compete as multi-business units. It focuses on Mergers & Acquisitions
as one of the chief means of implementing corporate strategy, and how firms use
and create value in Mergers & Acquisitions. As this is a mini-elective, this course
will not cover Alliances or JVs. The objective of the course is to give you a thorough
understanding of corporate strategy and M&As, and to give you a set of tools for making
good corporate strategic decisions, and for using M&A.
The course consists of two modules. The first module [Corporate Strategy, Scope and
Diversification (c. 25% of the course)] explores the firm’s decision of choosing/defining
its corporate strategy and scope. The second module [Mergers & Acquisitions (c. 75%
of the course)] focuses on M&A as corporate strategy tool.

Who Should Take this Course?


The course is particularly useful for those intending to become investment bankers
or strategy consultants as well as those who plan to work in corporate development
functions or in corporate HQs within multi-business firms. It should normally come after
students have been exposed to basic strategy and finance courses through the core
courses. Please note that this course is an introductory course on M&As and
corporate strategy and hence the course may not be appropriate for students who
have extensive experience with these topics. Auditing this course is not possible.
MBA Programme
Period: P3
May/June 2019

MAACS Course Overview



Subject Pedagogy Assignments

Module I. Corporate Strategy

1 +2 Corporate Strategy, Scope Case: Lloyds TSB (A) Poll # 1


and Diversification

Module II. Mergers & Acquisitions (M&A)

3 + 4 M&A Drivers and Value Case: M&A Wave in Chemicals Poll # 2


Creation/Capture

5 + 6 Company Valuation in M&A Case: Crown Cork & Seal/Carnaud Poll # 3


and Deal Structuring & Modelling

7 M&A of Technology and Post- Case: Cisco/Ironport


Merger Integration


MBA Programme
Period: P3
May/June 2019

Grading Scheme

• Individual on-line polls (3 polls) 25 %

• Individual class participation 30 %

• Group assignment: M&A analysis report 45 %

Individual on-line polls


For some classes, polls will be posted on the course website. You are required to
participate in the poll with your own independent contribution. For a typical poll, you will be
asked to express your opinion in a few sentences about the case (maximum of 10
sentences). Your poll score is judged on the number of polls you participated in AND by
the quality of your contribution. The poll closes at 11.59 pm (sharp) on the day before the
class.
Participants will be invited to share their poll answer during our class discussion. If you
encounter a problem with the IT server when submitting your poll answer, please send
your answer by e-mail to vivian.tan@insead.edu.

Individual class participation


Your class participation is an important component of your grade. Class participation
relates to your own contribution to shared classroom learning. Participants are required to
read the case and the readings in the course pack ahead of class. Attendance, especially
the quality of participation, respect for other participants’ points of view, and listening
attitude are key elements of a high participation grade. While the frequency of your
contributions is important for your grade, frequent but low quality participation will hurt your
grade. Naturally, missing class will also hurt your participation grade. Your attendance will
be checked during each class, and after each class your participation will be rated.

Group assignment: M&A analysis report


This group task requires you to write an in-depth critical analysis report on a recent merger
or acquisition (the acquisition must have been announced no more than 36 months prior to
the report due day). The main report should be no longer than 15 pages (Single-spaced,
Times New Roman, Font Size 12) including tables and figures. You may also wish to
attach additional appendices which support your analysis (models; framework analyses,
facts to support your argument, ancillary points/arguments/analysis etc.). The report
should at least consist of these components:
a) A strategic (and financial) analysis of the pre-M&A situation of both acquirer
and target,
b) A critical analysis of the historic corporate strategy and corporate
development strategy of both firms, and how this transactions fits in with this,
c) A critical analysis of the rationale/ synergies of the transaction communicated
by the acquirer and target management,
d) An analysis of the post-merger integration process and outcome,
e) An evaluation whether the right mode of corporate development was chosen
for the given aims of the acquirer,
MBA Programme
Period: P3
May/June 2019

f) A brief quantitative/qualitative analysis that scrutinizes whether the


anticipated synergies were achieved,
g) An overall evaluation of the transaction,
h) Tangible recommendations of how more value could have been created in
the transaction,
i) Lessons learned for both practitioners and theory.

To complete this assignment, a substantial amount of research will be required. Potential


sources can include but are not limited to business, financial and industry
press/magazines, financial data, analyst reports, corporate websites, company reports,
other INSEAD library sources etc.

You will be judged on substance and content, but also on communicating your arguments
and ideas concisely and effectively. Further, applying the theory, frameworks and insights
from the course in your analysis is very likely to strengthen your analysis and report.
The M&A analysis report is due electronically in Microsoft Word format (or equivalent) by
11.59pm (sharp) on […] via email to vivian.tan@insead.edu.

Grade distribution
There is no pre-defined grading-curve/ grade distribution applied in this course. As such
your performance is evaluated mainly in absolute terms rather than relative terms.
However, it is important to point out that the course is challenging.

Course materials
There is no textbook required for this course. All material that is necessary for this course
is available in the course pack or on the course website. Further, if you want to deepen
your understanding of the subject, you will find a list of voluntary supplementary readings
at the end of the syllabus for this purpose (Appendix 2). Handouts slides will be distributed
in each class and uploaded on the course website before each class.

Course Policies and Guidelines


The following rules are applicable to this course:
 Attending the first session of this course is compulsory (the course drop deadline is
before the second session);
 Do not switch between sections (unless the professor gives you prior written
permission);
 Advise the professor of any absence in advance of the respective class;
 You will not receive credit for the course if you miss more than three sessions.
 These rules and guidelines are in addition to the academic norms set out in the
INSEAD Code of Conduct (see below)


Academic Norms (excerpt from INSEAD Code of conduct)
“In the classroom
 Attend all sessions of every course, in the section assigned to you;
 Sit according to the seating chart provided;
MBA Programme
Period: P3
May/June 2019

 Arrive on time and remain in class until the end of the session;
 Only use mobile devices (laptops, phones, etc.) when directly relevant to the class;
 Dress and behave appropriately (no disruptive activities, no food);
 Behave tolerantly and with respect towards peers and faculty. Participate actively
without being offensive;
 Respect and adhere to all rules and guidelines outlined by individual professors in the
classroom.

Intellectual Honesty
 Plagiarism is not permitted - all work submitted in connection with your courses must
be your own unless it is clearly identified as that of someone else;
 During exams, do not copy from or communicate with other students. Do not take any
materials into the room unless explicitly permitted. Students are expected to respect
the rules set down during exams by the invigilator;
 Active contribution to and respect for your group is expected. Work submitted should
be original, unused before in any other course and should be the responsibility of the
group as a whole;
 Reproduction or distribution of any copyrighted materials or publications is strictly
limited and should only be done for study purpose.

Possible sanctions
Appropriate sanctions include, but are not limited to, the following:
 probation, suspension, exclusion;
 in addition, the Judicial Committee may also recommend grade modification including
failing or exclusion from specified extracurricular activities.


MBA Programme
Period: P3
May/June 2019

Appendix 1: Session Outline

Module I. Corporate Strategy

Class 1 + 2: Corporate Strategy, Scope and Diversification

Case Reading/Preparation:
 LLOYDS TSB (A): BUSINESS PORTFOLIO RESTRUCTURING AND DEVELOPMENT,
(INSEAD, ECCH REF.: 312-025-1)

Compulsory Readings:
 Ghemawat, P., and Rivkin, J.W. 2010. Choosing Corporate Scope (Chapter 6). In Strategy and
the Business Landscape. Third Edition, Pearson.

Suggested Additional Readings (optional):


 Collis, D., and Montgomery, C. 2005. An Introduction to Corporate Strategy (Chapter 1). In
Corporate Strategy: A Resource-Based Approach. McGraw-Hill

Study Questions:
 What was Lloyds’ corporate strategy before Brian Pitman took over as CEO, and what is it
during his tenure?
 Under Sir Brian Pitman’s tenure as long-serving chief executive and chairman, Lloyds’ stock
appreciated substantially. How was the corporate scope redefined during this period and what
role did it play in attaining this performance?
 What are the processes, incentives, reward systems, and corporate culture put in place to
execute Pitman’s new corporate strategy?
 As Pitman’s successor, what are the key challenges you face as a CEO over the next
decade? What are your strategic choices? What constraints do you face?

Assignment:
 One-line Poll # 1
- Question: Which strategic option would you recommend to Lloyds’ new CEO Peter
Ellwood, as Sir Brian Pitman stepped down as CEO? Please justify your answer.
a) Pursue domestic consolidation.
b) Enter new product markets in the UK.
c) Expand abroad in retail banking.
d) Return cash to shareholders.
e) Sell the bank to the highest bidder.
- Submit your response to poll # 1 by […].
MBA Programme
Period: P3
May/June 2019

Module II. Mergers & Acquisitions (M&A)

Class 3 + 4: M&A Drivers and Value Creation/Capture in M&A

Case Readings/Preparation
 ACQUISITION WAVE IN CHEMICALS (A): CLARIANT-BTP, (INSEAD, REF.: 306-323-1)

Compulsory Readings
 Puranam, P., and Vanneste, B. Forthcoming. The Search for Synergies (Chapter 2). In
Corporate Strategy: Tools for Analysis and Decisions. Forthcoming book.

Study Questions
 Does the Clariant-BTP deal make strategic sense?
 What are the driving factors behind the acquisition? Are these factors sensible factors or
irrational factors?
 How do the premiums in the proposed Clariant-BTP deal compare to earlier transaction in the
M&A wave in the fine chemicals industry?

Assignment:
 One-line Poll # 2:
- Question: What would you recommend to Clariant’s CEO regarding the potential
acquisition of BTP? Justify your answer.
a) Buy BTP at the proposed price.
b) Try to negotiate with BTP to lower the acquisition price, at the risk of losing BTP
to other bidders (what price is justified?).
c) Do not buy BTP.
- Submit your response to poll # 2 by […].

Class 5 + 6: Company Valuation in M&A and Deal Structuring

Case Readings/Preparation
 CROWN CORK & SEAL/CARNAUDMETALBOX (HBS, ECCH REF. 9-296-019)

Compulsory Readings
 Bruner, R.F. 2004. Valuing Firms (Chapter 9), and Valuing Synergies (Chapter 11). In Applied
Mergers and Acquisitions. John Wiley & Sons.

Suggested Additional Readings (optional):


 Rappaport, A., and Sirower, M.L. 2001. Stock or Cash?: The Trade-offs for Buyers and Sellers
in Mergers and Acquisitions. Harvard Business Review. 77: 147-158.

Study Questions
 What are Crown Cork & Seal’s motives for buying CarnaudMetalbox? Does the proposed
acquisition make strategic sense?
 What possible synergies do exist? How much value would the acquisition of CarnaudMetalbox
add to the value of Crown Cork & Seal?
 Who is in the better position to capture the value created by the acquisition: the shareholders of
Crown Cork & Seal or the shareholders of CarnaudMetalbox?
 How would you approach the valuation of CarnaudMetalbox? What is a fair value of
CarnaudMetalbox? What is the value of CarnaudMetalbox to Crown Cork & Seal? What is the
value of CarnaudMetalbox to another trade buyer, or to a financial sponsor (PE Fund)? What
MBA Programme
Period: P3
May/June 2019

premium should Crown Cork & Seal offer? (No calculations are needed to prepare for these
questions as we will be performing these valuations in class; think about qualitative answers to
these questions).

Assignment:
 One-line Poll # 3:
- Question: Should Crown Cork & Seal buy CarnaudMetalbox? Why/why not, and if
so at what price?
a) Yes, Crown Cork & Seal should buy CarnaudMetalbox at the price proposed.
b) Yes, but Crown Cork & Seal should try to negotiate on price, at the risk of losing
CarnaudMetalbox to another bidder. (what price is justified?)
c) No, Crown Cork & Seal should not buy CarnaudMetalbox.
- Submit your response to poll # 3 by […].
 BRING LAPTOP TO CLASS

Class 7: M&A of Technology and Post-Merger Integration

Case Readings/Preparation
 CISCO SYSTEMS: NEW MILLENNIUM - NEW ACQUISITION STRATEGY? (INSEAD, ECCH
REF. 310-060-1).
 IRONPORT (STANFORD, ECCH REF. E334)

Suggested Additional Readings (optional):


 Haspeslagh, P, and Jemison, D. 1991. Understanding Different Integration Approaches. In
Managing Acquisitions: Creating Value Through Corporate Renewal, Chapter 8. The Free
Press.
 Chaudhuri, S., and Tabrizi, B, 1999. Capturing the Real Value in High-Tech Acquisitions,
Harvard Business Review. 77: 123-130.
 Graebner, M.E., and Eisenhardt, K.E. 2004. The Seller's Side of the Story: Acquisition as
Courtship and Governance as Syndicate in Entrepreneurial Firms. Administrative Science
Quarterly. 49, 366-403.

Study Questions
 What is Cisco’s corporate strategy? What role does the Corporate Development office play in
Cisco’s strategy?
 How does Cisco add value as a parent to its acquired businesses and its operating
businesses?
 What makes Cisco successful as an acquirer? Do you consider Cisco as a model acquirer for
other firms?
 What are the dangers and limitations of Cisco’s corporate development strategy?
 What are the special characteristics of high-technology acquisitions that acquirers and
shareholders should be aware of ?
 Why is post-merger integration such an important determinant of M&A success? How can firms
design their post-merger integration process successfully?
 What are the biggest hurdles for the Cisco-Ironport acquisition and what would you advice Richard
Palmer (Cisco) on how to overcome them?
 Which post-merger integration strategy would make sense for a possible Cisco-Ironport acquisition?
(Apply Haspeslagh and Jemison’s typology)
 What are important considerations from a ‘Seller’s perspective’ which acquirers should be aware of
before embarking on acquisitions?
MBA Programme
Period: P3
May/June 2019

Appendix 2: Supplementary Reading Material (Optional)

Corporate Strategy, Scope and Diversification


 Collis, D.J., and Montgomery, C.A. 2004. Corporate Strategy: A Resource-Based Approach.
2nd Edition. McGraw-Hill/Irwin.
 Capron, L., and Mitchell, W. 2012. Build, Borrow or Buy: Solving the Growth Dilemma. Harvard
Business Review Press.
 Goold, M., Campbell, A., and Alexander, M. 1994. Corporate-Level Strategy: Creating Value in
the Multi-Business Company. John Wiley and Sons.
 Bowman, E.H., and Helfat, C.E. 2001. Does Corporate Strategy Matter? Strategic Management
Journal. 22: 1-23.
 Prahalad, C.K. and Doz, Y. 2003. The Rationale for Multi-SBU Companies. Chap 19. In The
Oxford Handbook of Strategy, Volume II. Corporate Strategy. Edited by D. Faulkner and A.
Campbell.

Mergers & Acquisitions (M&A)

 Haspeslagh, P.C., and Jemison, D.B. 1991. Managing Acquisitions: Creating Value
Through Corporate Renewal. The Free Press.
 Bruner, R.F. 2004. Applied Mergers and Acquisitions. John Wiley and Sons.
 McKinsey & Company, Koller, T., Goedhart, M., and Wessels, D. 2010. Valuation:
Measuring and Managing the Value of Companies. 5th Edition. John Wiley and Sons.
 Haleblian, J., Devers, C.E., McNamara, G., Carpenter, M.A., Davison, R.B. 2009. Taking stock
of what we know about mergers and acquisitions: A review and research agenda. Journal of
Management, 35: 469-502.

Alliances and Joint Ventures (JVs)

 Reuer, J. 2004. Strategic Alliances: Theory and Evidence. Oxford University Press.
 Doz, Y., and Hamel, G. 1998. Alliance Advantage: The Art of Creating Value Through
Partnering. Harvard Business Review Press.
 Dussauge, P., and Garrette, B. 1999. Cooperative Strategy: Competing Successfully Through
Strategic Alliances. John Wiley and Sons.
 Bamford, J., Ernst, D., and Fubini, D.G. 2004. Launching a World-Class Joint Venture. Harvard
Business Review. 82: 90-100.