Lesson 9.2.3. Corporate Alliances and Acquisitions

Key vocabulary

Ex 1. As business and the world economy become increasingly competitive, more and more companies have to strengthen their operations to remain profitable. Companies can go about this in a number of ways, including the following.

Joint venture: Two or more companies agree to collaborate and jointly invest in a separate business project. This type of deal allows the partners to combine their strengths in one specific area.

Merger: Two companies, often in the same industry, come together to form one company. Companies merge for many reasons, for example, to increase market share and cut costs in certain areas, such as research and development.

Acquisition or takeover: One company accumulates enough of another company's shares to take over control and ownership.

Lead-in

Ex 2. Read the following extracts from the financial press. In pairs, decide whether each one refers to (a) a joint venture, (b) a merger or (c) an acquisition.

1) Wail Disney Co., Hearst Corp and Peterson Publishing Co. are discussing a deal that would combine their considerable influence in the publishing world to launch a weekly magazine to compete with ‘Sports Illustrated” next year.

2) General Motors is to start building its Chevrolet Blazer, a sports utility vehicle, in the factories of Elabuga Avtomobilny Zavod (EIAZ) in Tartarstan, an autonomous part of Russia. This business project will be owned by EIAZ and GM, which plans to invest as much as $250 m in the plant.

3) Poland may call off talks on the sale of newsstand chain Ruch to France’s Hachette distribution service if it fails to make a firm financial offer soon.

4) Bank Inicjatyw Gospodanczych (BIG) and Gdanski are planning to work together on a new deal. They will form one new bigger and stronger bank and together they will control 4% of Polish banking assets.

5) Just as Daewoo Electronics chairman Bae Soon-Hun thought he had agreed a deal to buy Thomson Multimedia, the consumer electronics arm of Thomson, he heard that it had his offer.

Reading

Ex 3. Read the text about failed mergers, which uses the Volvo-Renault deal as an example, and see if it mentions any of your suggestions from Lead-in.

Ex 4. While reading pay attention to the marked word and word combinations given after the text.

When EGOs* collide: In the acquisitions jungle,

alpha* males are deal-breakers

Perhaps business schools should add anthropology* to the curriculum; the parallels between the behaviour of corporate executives and that of great apes are uncanny*. The spectacular collapse of die supposed alliance of drug giants GlaxoWellcome and SmithKline Beecham is a textbook example.

There was clear business logic to the union of the two Pharmaceuticals giants. The deal gave the companies a drugs research and development budget more than twice the size of their closest rivals, Novartis and Merck, and the combination of their complementary research technologies could have left them streets ahead of* the competition; cost-cutting alone could have saved $1 bn. But because these two great beasts of the jungle (the2s CEOs of the corporations) chose to throw sand in each other’s faces, the deal is off, at least for now.

Corporate egos cause problems but so they seem to be inevitable in a business culture that prizes drive, determination and leadership above all. Having the strength of personality and the ability to outmanoeuvre* others is a fundamental prerequisite to climb to the top of the corporate ladder. So with a power-hungry alpha male at the top of each company, it is not surprising that every time a mega-merger is announced, there’s a high probability of a boardroom bust-up.

Nicholas Bates, head of Human Resources Management at the European Business School, says many senior businessmen actually go off the top of the scale on personality tests. ‘Some of them are almost psycho-pathological and would have no hesitation taking everyone down with them. Some are verging on* paranoid.’ Nevertheless these are precisely the sorts of personalities that companies want because they can transform a business; the problems only appear when they have to get together with peers in their organisation who don’t share their views. Then clashes are inevitable.

Europe’s most spectacular and public bust-up was between automotive giants Volvo and Renault. In September 1993 Volvo and Renault announced they were to tie the knot, with Volvo holding a minority 35% stake. However, three months later Volvo shareholders and senior management rejected the marriage plans because of concerns that the deal undervalued Volvo, and was turning into a Renault take over, without Renault paying the acquisition premium. Simmering* resentment over chairman Pehr Gyllenhammer’s dictatorial management style at Volvo added spice to the management revolt. The divorce is reputed to have cost so Volvo several hundred million dollars and forced the resignation of Gyllen hammer after more than two decades in the driving seat.

Egos play such a large role when two giant corporations come together that it is hard to make them work unless one personality is prepared to take a back seat or step down. The $26 bn marriage go between Swiss giants Ciba and Sandoz to form Novartis in 1996 is often held up as a textbook example of how mega-mergers can work. It is successful, but much of that success is dependent on the fact that key personnel were ready for retirement, or were prepared to relinquish* old roles in favour of new opportunities in other scenarios.

Compromise* is essential if mergers between two powerful corporations are to work to the advantage of both parties and their shareholders. Otherwise friendly discussions break down and can easily turn into all-out war. In the corporate jungle, the question is now whether the imperatives of shareholders can control the egos of managers, to force through deals that deliver them the financial return they expect. This is where independent directors ought to play a part, although they rarely do.

The European

(Graham Tullis, Tonya Trappe New Insights into Business.

Longman, 2007. Р. 118.)

*an ego: a person's opinion about him / herself

*alpha: the highest mark in an exam

*anthropology: the study of people

*uncanny: strange and difficult to explain

*streets ahead of: much better than

*to outmanoeuvre: to gain an advantage by having a better plan

*verging on: almost, nearly

*simmering: just hidden below the surface

*to relinquish: to let somebody else take

*compromise: agreeing, while accepting some things you don’t like

Ex 5. Read the text again and answer the questions.

1.According to the author, why should GlaxoWellcome and SmithKline Beecham have gone ahead with their alliance? 2. Why didn't the deal go through? 3. What does Nicholas Bates say about the personalities of many senior businessmen? 4. What reason does the author give for the success of the Ciba-Sandoz merger? 5. What according to the author makes a successful merger?

Vocabulary

Ex 6. Choose the best definition for the underlined word in the sentences from the text.

1) The parallels between the behaviour of corporate executives and that of great apes are uncanny.

a) similarities b) differences с) distinctions

2) The spectacular collapse of the supposed alliance of drug giants GlaxoWellcome and SmithKline Beecham is a textbook example.

a) unusual b) interesting с) perfect

3) The deal gave the companies a drugs research and development budget more than twice the size of their closest rivals.

a) competitors b) partners с) friends

4) Corporate egos cause problems but they seem to be inevitable in a business culture that prizes drive, determination and leadership above all.

a) unavoidable b) impossible с) likely

5) Having the strength of personality and the ability to outmanoeuvre others is a fundamental prerequisite to climb to the top of the corporate ladder.

a) step b) problem с) requirement

6) The problems only appear when they have to get together with peers in their organisation who don’t share their views.

a) people who hold higher positions b) people who hold lower positions

с) people who hold similar positions.

7) Then clashes are inevitable.

a) solutions b) strong differences of opinion с) long discussions

8) In the corporate jungle, the question is now whether the imperatives of shareholders can control the egos of managers.

a) urgent demands b) instructions с) strong personalities

Listening

Ex 7. Read the following short text to get familiar with the situation and get ready for the listening task.

It is generally agreed that successful meetings make successful companies.

However, many professionals complain that meetings are often unproductive and too long. Discussions are regularly dominated by participants with large egos and hours of talking ends without any clear result. Consequently, many companies get help from specialised consultants, who give advice on how to make meetings more effective.

Ex 8. a) You will hear a consultant giving advice about meetings. Listen and take notes to help you complete the passage below.

b) In groups, use your notes to complete the passage.

If a meeting is to be productive it should have 1 a clear and stated purpose that all the participants know and understand. You should appoint a2 ___________ who manages and controls the meeting.

You must write an 3____________________, or list of items to be discussed and send it 4__________________. They should 5______________________ and come to it with ideas to contribute.

You have to 6_______________ to each point, otherwise there is a risk that some of the items will not be dealt with at all.

You ought to 7_________________. If not you have to 8____________ into the agenda.

You don't need to 9___________________. But you should send other senior staff members 10_____________________, or summary of what was discussed.

The minutes should include 11______________ you don't have to 12____________. However, you need to include 13_________________ decided upon at the meeting. Lastly, the minutes should 14________________. It is essential to keep the 15____________ clear in everyone's mind.

Ex 9. Match the expressions a-j below to the following things that a chairperson should do:

a. Has everyone got that? b. Shall we move on? c. As I see it, we seem to be saying... d. Could you let us have the exact figures for Friday? e. What exactly do you mean? f. So what we've finally decided on is... g. We'll have to move on I'm afraid. h. Thanks for coming everyone. i. What do you think of that, Mr...? j. Thanks very much everyone, that was very useful.

1) open the meeting 2) keep things moving 3) keep an eye on time 4) make sure everyone stays focused 5) invite contributions 6) summarise regularly 7) seek clarification 8) summarise agreed action points 9) allocate action points and establish deadlines 10) close the meeting

Ex 10. a) Match the expressions a-l below to the following things that participants should do:

a. I’m convinced that... b. How about... c. I’m all in favour of that. d. Why don’t we... e. I’m afraid I don’t accept that at all. f. So what you are suggesting is... g. Could you explain that in more detail? h. I’m sorry but I don’t agree at all. i. I quite agree. j. The way I see it is... k. Am I right in thinking that...? l. In other words you are saying...

1) express agreement 2) express disagreement 3) make suggestions 4) summarise arguments 5) ask for clarification 6) present arguments

b) What other expressions do you know?

Role-play

Ex 11. Read the text and make notes about the situation.

Your company is negotiating an alliance with a company which insists that employees only work 35 hours per week. If your company goes ahead with the alliance, the employees will not have to take a salary cut but they will not be allowed to work overtime. Ordinary workers, who often work overtime to earn extra money, will therefore lose some of their earning potential. Executives in the company who are not paid overtime will be less concerned about that, but the 35-hour week will have other consequences for them, if they don't have enough time to complete their projects, they will have to share power and control with new employees who will need to be brought in to meet work demands.

Ex 12. In groups, you will be given a role to play. Read the agenda and your role carefully. Then prepare how you will express your opinions and suggestions at the meeting. Be prepared to agree and disagree with the other participants.

Ex 13. In groups, conduct the meeting. Every member should take notes in order to write a full report on the meeting later. Feel free to add other opinions and recommendations.

Writing

Ex 14. Using the notes you took at the meeting, write the minutes. Remember the minutes of a meeting should include:

· a summary of the chairperson's introduction

· a summary of the opinions and suggestions made by the participants

· the action points that were decided upon

· the people involved in carrying out the action points

· the deadlines that were fixed

· the date and time of the next meeting