Tiếng anh chuyên ngành kế toán part 59

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Making Key Strategic Decisions
and $20 billion of annual long-distance telephone revenues, along with the
NCR acquisition, would guarantee the company’s success in the PC business.
They were confident enough to increase their original offer price by $1.4 bil-
lion. The problem was that by this time, PCs had become a commodity and
were being assembled at low-cost around the world using off-the-shelf compo-
nents. Unlike the microprocessor and software innovations of Intel and Micro-
soft, AT&T’s research skills held little profit potential for the PC business.
AT&T hoped to use NCR’s global operations to expand their core telecom
business. But NCR’s strengths were in developed countries, whereas the
fastest-growing markets for communications equipment were in developing
third-world regions. And in many companies, the computer and telephone sys-
tems were procured and managed separately. Thus, the anticipated synergies
never materialized.
Finally, the two companies had very different cultures. NCR was tightly
controlled from the top while AT&T was less hierarchical and more politically
correct. When AT&T executive Jerre Stead took over at NCR in 1993, he
billed himself as the “head coach,” passed out T-shirts, and told all of the em-
ployees they were “empowered.” This did not go over well in the conservative
environment at NCR, and by 1994, only 5 of 33 top NCR managers remained
with the company.
Disaster Deal No. 2
Throughout 1994, Quaker Oats Co. was rumored to be a takeover target. It was
relatively small ($6 billion in revenue) and its diverse product lines could be
easily broken up and sold piecemeal. In November, Quaker announced an
agreement to buy iced-tea and fruit-drink maker Snapple Beverage Corp. for
$1.7 billion, or $14 per share. CEO William Smithburg dismissed the 10%
drop in Quaker’s stock price, arguing “We think the healthy, good-for-you
beverage categories are going to continue to grow.” The hope was that Quaker
could replicate the success of its national-brand exercise drink Gatorade,

which held an extraordinary 88% market share.
Snapple, which had 27% of the ready-to-drink tea segment was distrib-
uted mainly through smaller retail outlets and relied on offbeat advertising
and a “natural” image to drive sales. Only about 20% of sales were from super-
markets where Quaker’s strength could be used to expand sales of Snapple’s
drinks.
Aftermath: In April 1997, Quaker announced it would sell Snapple for
$300 million to Triarc Cos. Quaker takes a $1.4 billion write-off and the sale
price is less than 20% of what Quaker paid for Snapple less than three years
earlier. Analysts estimated the company also incurred cash losses of approxi-
mately $100 million over the same period. Ending a 30-year career with the
company, CEO Smithburg “retires” two weeks later at age 58.
Profitable Growth by Acquisition
569
What doomed the Quaker-Snapple deal? One factor was haste. Quaker
was so worried about becoming a takeover target in the rapidly consolidating
food industry that it ignored evidence of slowing growth and decreasing prof-
itability at Snapple. The market’s concern was reflected in Quaker’s stock price
drop of 10% on the acquisition announcement. In spite of this, Quaker’s man-
agers proceeded, pushing the deal through on the promise that Snapple would
be the beverage industry’s next Gatorade. This claim unfortunately ignored the
realities on the ground: Snapple had onerous contracts with its bottlers, fading
marketing programs, and a distribution system that could not support a national
brand. There was also a major difference between Snapple’s quirky, offbeat
corporate culture and the more structured environment at Quaker.
Most importantly, Quaker failed to account for the possible entrance of
Coca Cola and Pepsi into the ready-to-drink tea segment—and there were few
barriers to entry—which ultimately increased competition and killed margins.
Disaster Deal No. 3
The 1998 $130 billion megamerger between German luxury carmaker Daimler-

Benz and the #3 U.S. automobile company, Chrysler Corporation, was univer-
sally hailed as a strategic coup for the two firms. An official at a rival firm
simply said “This looks like a brilliant move on Mercedes-Benz’s part.”* The
stock market agreed as the two companies’ shares rose by a combined $8.6 bil-
lion at the announcement. A 6.4% increase in Daimler-Benz’s share price ac-
counted for $3.7 billion of this total. The source of this value creation was
simple: There was very little overlap in the two companies’ product lines or ge-
ographic strengths. “The issue that excites the market is the global reach,” said
Stephen Reitman, European auto analyst for Merrill Lynch in London.* Daim-
ler had less than 1% market share in the U.S., and Chrysler’s market share in
Europe was equally miniscule. There would also be numerous cost-saving op-
portunities in design, procurement, and manufacturing.
The deal was billed as a true partnership, and the new firm would keep
operational headquarters in both Stuttgart and Detroit and have “co-CEOs”
for three years after the merger. In addition, each firm would elect half of the
directors.
Aftermath: By the end of 2000, the new DaimlerChrysler’s share price
had fallen more than 60% from its post merger high. Its market capitalization
of $39 billion was 20% less than Daimler-Benz’s alone before the merger! All
of Chrysler’s top U.S. executives had quit or been fired, and the company’s
third-quarter loss was an astounding $512 million. As if all of this weren’t bad
enough, DaimlerChrysler’s third-largest shareholder, Kirk Kekorian, was suing
the company for $9 billion, alleging fraud when they announced the 1998 deal
as a “merger of equals.”
* “Auto Bond: Chrysler Approves Deal With Daimler-Benz,” The Wall Street Journal,
May 7, 1998.
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Making Key Strategic Decisions
In this case, Quaker’s management was guilty of two mistakes: failure to ana-
lyze Snapple’s products, markets, and competition correctly and overconfi-

dence in their ability to deal with the problems. Either way, their lapses cost
Quaker ’s shareholders billions.
Although the jury is still out on the Daimler-Chrysler merger, analysts al-
ready have assigned at least some of the blame. There were culture issues from
the start, and it quickly became apparent that co-CEOs were not the way to
manage a $130 billion global giant. Chrysler CEO Robert Eaton left quietly at
the beginning of 2000 and there were other departures of high-level American
executives. Morale suffered as employees in the U.S. realized that the “merger
of equals” was taking on a distinctive German flavor and in November 2000,
the last remaining Chrysler executive, U.S. president James Holden, was fired.
Rather than deal with these issues head-on, Daimler CEO Jergen
Schremp took a hands-off approach as Chrysler’s operations slowly spiraled
downward. The company lost several top designers, delaying new product in-
troductions and leaving Chrysler with an aging line of cars at a time when its
competitors were firing on all cylinders. The delay in merging operations
meant cost savings were smaller than anticipated as were the benefits from
sharing technology. Finally, analysts suggested that Daimler paid top dollar for
Chrysler at a time when the automobile industry in the U.S. was riding a wave
of unprecedented economic prosperity. As car sales began to sag at the end of
2000, all three U.S. manufacturers were facing excess capacity and offering
huge incentives to move vehicles. This was not the ideal environment for
quickly restructuring Chrysler’s troubled operations and Daimler was facing a
35% drop in projected operating profit between 1998 and 2001.
Conclusions: These three case studies highlight some of the difficulties
firms face in achieving profitable growth through acquisitions. Managerial
hubris and a competitive market make it easy to overestimate the merger’s
benefits and therefore overpay. A deal that makes sense strategically can still
be a financial failure if the price paid for the target is too high. This is espe-
cially a problem when economic conditions are good and high stock prices
make it easy to justify almost any valuation if the bidder’s managers and direc-

tors really want to do a deal. Shrewd managers can sell deals that make little
strategic sense to unsuspecting shareholders and then ignore signals from the
market that the deal is not a good one.
The previous examples make it clear that it is easy to overstate the bene-
fits that will come after the transaction is completed. Whatever their source,
these benefits are elusive, expensive to find and implement, and subject to at-
tack by competitors and economic conditions. Managers considering an acquisi-
tion should be conservative in their estimates of benefits and generous in the
amount of time budgeted to achieve these benefits. The best way to accurately
estimate the benefits of the merger is to have a thorough understanding of the
target’s products, markets, and competition. This takes time and can only come
from careful due diligence, which must be conducted using a disciplined
Profitable Growth by Acquisition
571
ap
proach that fights the tendency for managers to become emotionally at-
tached to a deal. In spite of the time pressures inherent in any merger transac-
tion, this is truly a situation where “haste makes waste.”
A common factor in each of these transactions—and one often overlooked
by managers and researchers in finance and accounting—is culture. Two types
of culture can come into play in an acquisition. One is corporate or industry
culture and the second is national culture, which is a factor in cross-border
deals. If the target is in a different industry than the bidder, a careful analysis
of the cultural differences between them is essential. Culture is especially
critical in industries where the main assets being acquired are expertise or in-
tellectual capital. Failure to successfully merge cultures in such industries can
be particularly problematic because key employees will depart for better work-
ing conditions. The attempted 1998 merger between Computer Associates
(CA) and Computer Science Corporation (CSC) ultimately failed when CA re-
alized that their mishandling of the negotiations and their insensitivity to the

culture at CSC would cause many of CSC’s consultants to quit the merged
company. We will discuss the keys to successful implementation of mergers
later in the chapter. In the next section we examine the acquisition strategy of
Cisco Systems Inc. We do this to make it clear that there are ways to increase
your chances of success when planning and implementing an M&A strategy.
ANATOMY OF A SUCCESSFUL ACQUIRER:
THE CASE OF CISCO SYSTEMS INC.
Cisco Systems Inc., the Silicon Valley-based networking giant, is one of the
world’s most successful corporations. Revenues for the fiscal year ending July
2000 were up an incredible 55% to $18.9 billion, while net income grew to $3.9
billion, resulting in a healthy 21% net profit margin. Even more impressive was
its 10th consecutive quarter of accelerating sales growth, culminating in a 61%
sales increase for the last quarter. At $356 billion, Cisco’s market capitalization
trailed only General Electric Company. What is behind such phenomenal results?
Beginning in 1993, Cisco has acquired 51 companies, 21 of them in the
12-month period ending March of 2000. Not every one of these deals has been
a winner, and certainly some elements of Cisco’s strategy are unique to the
high-technology industry. However, in a recent survey of corporate M&A poli-
cies Cisco was ranked number 1 in the world, and there are lessons for any po-
tential acquirer in its practices.
5
We will focus on two aspects of Cisco’s acquisition strategy: the compet-
itive and economic forces behind it and how new acquisitions are merged into
the corporate fold. The strategic imperative behind Cisco’s acquisition spree is
simple. Each year the company gets 30% to 50% of its revenue from products
that it did not sell 12 months before. Technological change means that Cisco
cannot internally develop all of the products its customers need. They have
two choices; to limit their offerings or to buy the products and technology they
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Making Key Strategic Decisions

can’t or choose not to develop. In this case, the strategy is driven by their cus-
tomer’s demands and by the realities of the industry. Once CEO John Cham-
bers and Cisco’s board made rapid growth a priority, an effective M&A plan
was the only way to accomplish this goal. To minimize risk, Cisco often begins
with a small investment to get a better look at a potential acquisition and to as-
sess it products, customers, and culture. Finally, Cisco often looks for private
and pre-IPO companies to avoid lengthy negotiations and publicity.
Cisco’s 1999 acquisition of fiber-optic equipment maker Cerent Corpora-
tion is a good example of this strategy. Cisco purchased a 9% stake in Cerent in
1998 as a hedge against what analysts viewed as Cisco’s lack of fiber-optic ex-
pertise. Through this small investment, Cisco CEO John Chambers got to
know Cerent’s top executive, Carl Russo. He quickly realized that they had
both come up through the high-tech ranks as equipment salesmen and had
built their companies around highly motivated and aggressive sales teams. Cer-
ent’s 266 employees included a 100-member sales team that had assembled a
rapidly growing customer base. Cerent also favored sparse offices—a Cisco
trademark—and Mr. Russo managed the company from an eight-foot square
cubicle. All of these factors gave Cisco important insights into Cerent’s
strengths and corporate culture.
When Mr. Chambers felt comfortable that Cerent could successfully be-
come part of Cisco, he personally negotiated the $7 billion purchase price for
the remaining 91% stake with Mr. Russo. The discussions took a total of two
and a half hours over three days. When the deal was announced on August 25,
1999, the second—and arguably the most important—phase of Cisco’s acquisi-
tion strategy kicked in. Over the years, including an occasional failure, Cisco
had developed a finely tuned implementation plan for new acquisitions. The
plan has three main pieces:
1. Don’t forget the customer.
2. Salespeople are critical.
3. The small things garner loyalty.

There is often a customer backlash to merger announcements because
customers’ perception of products and brands may have changed. In the recent
spate of pharmaceutical industry mergers, only those firms that avoided pair-
ing up experienced substantial sales growth. As part of the external environ-
ment, customers are easy to ignore in the short term when the tendency is to
focus on the internal aspects of the implementation. This is a big mistake. To
allay customer fears, in the weeks after Cerent was acquired, Mr. Russo and his
top sales executive attended the annual Cisco sales convention meeting and
Mr. Chambers joined sales calls to several of Cerent’s main customers.
This lesson did not come cheaply. When Cisco acquired StrataCom in
1996, it immediately reduced the commission schedule of StrataCom’s sales
force and reassigned several key accounts to Cisco salespeople. Within a few
months, a third of StrataCom’s sales team had quit, sales fell drastically, and
Cisco had to scramble to retain customers. In the Cerent implementation, the