THE RESTRUCTURING OF CORPORATE AMERICA

1. THE RESTRUCTURING OF CORPORATE AMERICA Mergers & Acquisitions, Takeovers, LBOs, and Downsizing

2. BUSINESS TODAY • Companies are merging and acquiring at high rates once again. • If you are like most people, you have found all this activity quite confusing. • What does it mean? • Corporate America is restructuring.

3. MERGERS • MERGER: Occurs when two or more companies form one corporation by mutual agreement.

4. History of Mergers • The 1st U.S. Merger – 19th Century – Mr. Proctor and Mr. Gamble initially had two separate businesses. • Federated bought R.H. Macy - largest department stores. • Early 1980’s – major oil companies, late 1980’s – food and consumer products Co.’s, bank mergers – 1990’s.

5. “IN THE NEWS” • Business headlines: mergers, acquisitions, hostile takeovers, and buyouts. • The 1980’s – “The Deal Decade.” • More than a third of the Fortune 500 companies were swallowed up by other concerns or went private in a 10-year span. • Fortune – “Ripsnorting string of shoot em’ ups like nothing ever seen on Wall Street.”

6. Why MERGER? • Fear and the need for survival. • Reduce expenses and/or spread costs across a bigger asset base. • More competition • New technology • Markets change

7. Why are Mergers Difficult? • EXPENSIVE • “People” problems. • Clash of different organization cultures.

8. What it takes for MERGERS to work • The two companies must fit together from a strategic standpoint. • The two organization cultures must be compatible.

9. ACQUISITIONS • ACQUISITION: a transaction in which a firm buys all or part of another business and the transaction is agreeable to both parties.

10. ACQUISITIONS VS. MERGERS • Similar in that, they are “friendly,” that is, done by mutual consent. • Also, strategic fit and culture compatibility are essential to success for both processes.

11. Why ACQUISITIONS? • To provide services in support of your product. • More competitive • Stay innovative.

12. Major M&A Deals

13. TAKEOVERS • Occurs when the purchasing company makes a direct bid to the target company’s stockholders because the target’s management opposes the purchase. • “Corporate Raiders” – Individuals successful at taking over their targets.

14. HOSTILE TAKEOVERS • Most takeovers are hostile, that is, the target tries to prevent the purchase.

15. TAKEOVER DEFENSES • The Poison Pill: the target issues new securities to raise the cost of acquiring the firm. • Go private: Instead of being publicly-traded, a small group of individuals own and has direct responsibility for the firm.

16. LEVERAGED BUYOUTS (LBO) • A group buys the majority of stock in their own company from shareholders. • The company becomes private vs. public. • Typically, the investors sell subsidiaries, cut jobs, and slash costs = ideal result is a smaller, better focused company.

17. WHY LBOs? • Avoid hostile takeovers. • Managers want to become their own bosses. • When managers are tired of low stock prices. The buyout (and takeover) process raises prices, and managers often sell their personal holdings at big profits.

18. In defense of Takeovers and LBOs • Were defended because they allegedly bring out the best in companies. Debt forces a company to operate with greater efficiency. • “There’s nothing like survival mode to get humans moving.” • James Bere, CEO of Borg-Warner

19. A new toughness Greater efficiency Stock prices Motivated managers Loss of good people Massive debt Short-term focus Fear of job loss THE IMPACT OF RESTRUCTURING

20. DOWNSIZING • Downsizing is the planned elimination of positions or jobs. • Common approaches include: eliminating functions, hierarchical levels, or units. • Who? At some point - IBM, Citicorp, Goodyear, Exxon, CBS, ABC, Xerox, TRW, and GM.

21. Why Downsize? 1. Reduce Costs 2. Reduce their size. 3. Reduce debt and improve financial positions.

22. RIGHTSIZING? • To some, it is just a euphemisms for laying people off so the company becomes smaller. • RIGHTSIZING: a successful effort to achieve an appropriate size at which the company performs most effectively. “Well-managed changes in size.”

23. SURVIVOR’S SYNDROME • The people who lose their jobs because of downsizing are not the only ones deeply affected. • Those who keep their jobs tend to exhibit survivor’s syndrome.

24. SURVIVOR’S SYNDROME • Struggle with heavier workloads. • Wonder who will be next to go. • Try to figure out how to survive • Lose commitment to the company • Lose faith in their bosses • Become narrow-minded, self-absorbed, and risk averse. • Morale and productivity drops.

25. What can be done to manage downsizing effectively? Avoid exorbitant debt and overhead costs. Don’t make slow, small, frequent layoffs. Don’t lay off so many people work can’t be performed. Don’t place survivors in more demanding jobs without training and communication. Cut the right jobs (careful analysis).

26. NEW ORGANIZATIONAL FORMS • Network organizations • Virtual corporations • Strategic alliances • Learning organizations • High involvement organization • Team based organizations.

27. Network Organization Designers Producers Brokers Suppliers Distributers A collection of independent, mostly single function firms. Flexible, often temporary arrangements.

28. Strategic Alliance • A formal relationship created with the purpose of joint pursuit of mutual goals. • Mutual Goals = • Develop new technologies • Enter new markets • Reduce manufacturing costs

29. EVERYONE A BUSINESSPERSON • Companies today want everyone to think like a complete businessperson, not just a worker doing a particular task. • They want all their people thinking and behaving like entrepreneurs, looking for new business opportunities, and doing anything to make positive contributions to the company.

30. EVERYONE A BUSINESSPERSON • They want people to: • Seek responsibility • Take Initiative • Provide great customer service • Focus on results • Be PRO-ACTIVE • Have a do-whatever-it-takes-to-get-the-job- done mentality. “Think outside the box!.”