Journal entry (Week 16)- Development Methods

Questions

1. In your own words and using referenced quotes describe the difference between organic growth, merger & acquisition and strategic alliance.
2. Give an example of a company that has grown through a) organic growth, b) merger or acquisition and c) strategic alliance
3. Briefly discuss the merger between Britvic and AG Barr. What advice would you give to the new Board?

Organic growth

Expansion of a firm's operations from its own (internally generated) resources,without resorting to borrowing or acquition of other firms.- Business dictionary

In other words, Organic growth represents the true growth of a company i.e. it shows how well the organization has managed its internal resources to increase profit. It also represents the effectiveness of the manager and the management team.

Example: General electrics.

Merger

The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. - Investopedia

In other words, merger happens when two companies become a single new company.In mergers, the firms are usually of same size. The newly formed company has new stocks.

Example:Sony and Ericsson, HP and Compaq

Acquisition

A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.- Investopedia

In other words, Acquisition happens when a company takes over another and becomes the new owner of that company. In acquition, the company that is taken over still exist as an independent legal company but is controlled by the company that acquired it.

Example: News Corp.'s acquire Dow Jones, SPSS acquition by IBM

Strategic Alliance

Agreement for cooperation among two or more independent firms to work together toward common objectives. Unlike in a joint venture, firms in a strategic alliance do not form a new entity to further their aims but collaborate while remaining apart and distinct.- Business dictionary

In other words, Strategic alliance happpen when two companies decide to share resources when working on a mutually beneficiary project. Each company still maintain their autonomy. Strategic alliance helps the companies to expand into new markets, gain competitive advantage.

Example: A apparel manufacturer may form strategic alliance with apparel retailer to ensure consistent quality

Merger Between Britvic and AG Barr

The deal between Britvic and barr is structured as acquisition with Barr owing 37% of share.

With the two giant companies of UK merging together to form AG Barr and Britvic, there'll be only one company in competition with them i.e. Coke.

Positive and Benefits:

• This deal will result in annual cost saving of 23 per cent of combined operating profit which seems a great deal.
• It will help both the companies fight competition with companies like COKE
• Barr will also be linked to Pepsi through Britvic which is pepsi's bottler.
• Barr has the management expertise that Britvic lacks 
• There will be more cash flow to cover Britvic’s £600m of net debt.

Negatives and potential risks:

• The French may not accept Barr drinks
• Competition commission and anti-trust authority are concerned that  the merger it will give them pricing advantage in the market as there will be only 2 major players.

Reference:

Acquisition, Investopedia. Available at: http://www.investopedia.com/terms/a/acquisition.asp#ixzz2NZwqvaLT [Accessed on: 14 March, 2013]

Merger, Investopedia. Available at: http://www.investopedia.com/terms/m/merger.asp#ixzz2NZvymUv5 [Accessed on 14 March, 2013]

Organic growth, Business dictionary. Available at: http://www.businessdictionary.com/definition/organic-growth.html#ixzz2NZuCZrqd [Accessed on: 14 March, 2013]

Strategic Alliance, Business dictionary. Available at: http://www.businessdictionary.com/definition/strategic-alliance.html#ixzz2NZxnKRb2 [Accessed on: 14 march, 2013]