Thursday 4 February 2010

Takeovers - Defining the Facts of Life?

By definition, when a stronger company takes over a weaker company, key realities apply…
a) Stronger = better than average financial performance (ROCE, Net Margin, Rotation, Gearing….)
b) Weaker = lower than average financial performance
c) Bid price = initial offer at which the stronger company believes they can release potential synergies via increased scale, and rationalisation (cuts), and thus produce an overall performance that is better than the sum of the parts. If they are forced to increase the price (by target company, shareholders, competition or the government), then the cuts have to be deeper and faster. (The stockmarket allows about 12 months to prove that the takeover was a good idea)

d) Making it work: Assets
= Pooling of assets, globally, regionally and locally
= Amalgamating production to optimise efficiency, effectiveness, and minimise duplication
= Redefine 'core' products and rationalise Product portfolios, selling off 'non-core' products to cover integration costs
= Re-assess customer-base and rationalise customer portfolios
= Re-align prices and terms to minimise disparities

e) Making it work: Corporate Culture
= Redefine and unify corporate cultures of each party (corporate culture of the takeover party and 'price-paid' tend to determine speed of integration)

f) Making it work: People
= Starting at the top (globally, regionally and locally) compare job-holders and 'de-duplicate' (See Points 4-7 below for criteria)
= (NB People are not listed as assets in the Balance Sheet, but the quality of the people determines how well the Assets and the company perform).
= The eventual success of the takeover will be determined by how well all of the people are handled, and are seen to be handled, in transition.

Doubtful? (re-read above)

Pre-emptive action:
1 Make your company stronger (better than category average in ROCE, Net Margin, Rotation, Gearing…)
2 This drives your share/stock price up to a point where the company becomes too expensive to buy, and too good to improve
3 Sharpen your competitive edge: better than available competition from the point-of-view of retail customers and consumers in terms of Product, Price, Presentation and Place
4 Clarify your role and how it impacts corporate financial performance
5 Then apply Points 1-3 to your role i.e. make your contribution stronger (better than average impact on ROCE, Net Margin, Rotation, Gearing…)
6 This makes you more valuable, and less easy to replace
7 If you still don't fit, then by definition your personal market appeal will have been enhanced

Still Doubtful?
Why not ask anyone who has been at the receiving end?

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