Extra Credit - Blog Post #4

This year, Tudou has merged with the company to become a wholly-owned subsidiary of Youku. China's two biggest video websites have merged is the latest sign of consolidation and a search for economics of scale in China’s Internet industry as growth eases from its torrid early-era pace.

Before merging, the state of Youku's operation is pool. And its pressure of competition is too intense. On the other hand, Tudou cannot revive its waning fortunes and it has been undervalued for a long time.

In the past, because of two companies in platform development direction are difference, there will be a personnel transfer on a large scale in two companies, including sales, procurement, finance and other departments will become the main direction of adjustment.

By merging, the brand new company, Youku Tudou Inc., estimates to save $60 million on content licensing, bandwidth and other areas. Looking forward to see this merger will create a new successful company.



Refence:
http://thenextweb.com/asia/2012/08/20/chinese-video-giant-youkus-shareholders-approve-tudou-merger-deal/

http://paidcontent.org/2012/08/20/chinese-video-leaders-youku-and-tudou-merge-to-cut-costs/

http://thenextweb.com/asia/2012/08/24/tudou-founder-gary-wang-retires-chinese-online-video-merger-youku-completes/

Quantitative Article Blog Post

The purpose of the article is "to test market efficiency with respect to merger and acquisition announcements using standard event study methodology."

There are three forms of Market Efficiency: Weak, Semi-Strong, and Strong, that explain how quickly the Market will react to publicly announced information. And this article focuses on the semi-strong form.

The type of this research is hypothesis testing. The Efficient Market Hypothesis states that investors should not be able to earn above normal returns in the Market, due to the fact that the Market operates with all pertinent information taken into account.

"In order to test the Semi-Strong Market in relation to the announcement of company mergers the follow hypotheses are formulated:

H10: The Risk Adjusted Return of the stock price of the sample of forms announcing a merger is not significantly affected by this type of information on the announcement date.

H11: The Risk Adjusted Return of the stock price of the sample of firms announcing a merger is significantly affected in a positive way by this type of information on the announcement date

H20: The Risk Adjusted Return of the stock price of the sample of firms announcing a merger is not significantly affected by this type of information around the announcement date, as defined by the event period.

H21: The Risk Adjusted Return of the stock price of the sample of firms announcing a merger is significantly affect in a positive way around the announcement date, as defined by the event period."

According to this study, author suggests that a merger should make a shareholder optimistic about returns.


Reference:

http://www.aabri.com/manuscripts/09142.pdf

Issues about Merger and Acquisition between United and Continental

It is well known that one of the biggest merger and acquisition in airline industry between United Airline and Continental Airline in 2010. After this merger and acquisition, the new company becomes the largest airline in the world.

However, we cannot only focus on the shiny side of the coin. There are some issues happened because of the merger and acquisition.

One of these issues is the lose of talent. Some employees quit their jobs because of the new policy of staff welfare. Due to the new policy of staff welfare, the employees in high position but with short length of service cannot use standby tickets any more. Some employees quit their jobs because of their new bosses. The paces of work in Continental is obvious slower than the paces of work in United. After the merger and acquisition, some Continental employees work for their new bosses from United. If employee A is on vacation, and the part which is he in charge of is down. Instead of waiting him come back to fix the issue after 5 days, the boss from United will ask employee B using 3 days to learn how to fix it. It makes employee B very nervous. As the paper I reference, because of the differences between two computer systems, there are some computer issues happens after the merger and acquisition.

These are small problems. I believe the new company will become increasingly better.

Reference:

http://money.cnn.com/2012/11/15/news/companies/united-continental-computer-delays/index.html

http://www.businessweek.com/ap/2012-08-28/united-airlines-struggles-with-computer-problems

http://usatoday.com/story/todayinthesky/2012/11/05/united-dreamliner-inaugural/1682693/

United and Continental to merge

In 2010,  there was a big merger and acquisition in airline industry between United and Continental to create the largest airline in the world. $3 million was the price for the combination with an expected revenue $29 billion annually and cost save round $1.1 billion in the next three years.

However, the merger was not as simple as people thought. Although United and Continental were in the airline industry, making changes was an important issue in order to fit them in together. Continental employees would work with United colleagues. Meetings were taken place to make decisions on activities, culture, and style of the new United. Despite of financial health of airline industry, squeezed oil price, price-sensitive customers, the combination of two large airlines will help the management to look back and figure out how to make things right.

To prepare for these outcomes, practicing managers should have a good solution on re-examine and re-arangement things. This is a complex business that the new company has to work on people issues, technology issues, facilities issues, fleet issues, etc. which could take several years. However, retaining existing values of both airlines  is a must to keep faithful customers and seek for potential passengers.

Source: 

http://money.cnn.com/2010/05/03/news/companies/United_Continental_merge/index.htm

http://travel.usatoday.com/flights/2010-06-22-mergerfares22_CV_N.htm

http://www.businessweek.com/magazine/united-continental-making-the-worlds-largest-airline-fly-02022012.html#p2

 

Practitioner articles: The Merger Dividend

The purpose of the article is telling us that there is a wonderful chance to develop both the current leader and the next generation of leader in a merger.

Companies can develop them in three specific leadership areas to maximize the growth opportunities inherent in a merger.

The first thing we can develop is getting everyone on the same page. We want to know what the company would look like one year after the close of the deal into four categories: financial, strategic, operational, and organizational. We want to know what is expected of everyone on both sides of the deal. Therefore, we should create a document which is called "merger intent". The author gives us an example about ING and CitiStreet.

The second thing we can develop is executing with discipline. There are lots of difficult tasks will give rise to an emotionally charged, high-pressure, and time-constrained atmosphere where getting results is an absolute necessity. Teams must quickly mobilize, make work plans, and prioritize tasks and time.

There are two ways to use integration to develop execution capacity. The first one is putting people with high potential into critical short-term roles. The second one is "to set particularly challenging short-term goals with direct accountability for rapid execution, increasing the pressure on teams to try some thing new."

The third thing we can develop is building an A-team. CEOs should conduct an overall assessment of the employees on both sides of the deal and create a team that reflects the best.



Reference: http://hbr.org/2011/07/the-merger-dividend/ar/1
The Merger Dividend by Ron Ashkenas, Suzanne Francis, and Rick Heinick, Harvard Business Review July 2011

Learning from Family Businesses

If you’re like me when you think of family businesses, then the image of a rustic mom and pop shop may spring to mind.  Personally, it just reminds me of a cheap hair salon in the middle of Chinatown that I used to go to.  However, such a view is influenced more by nostalgia than sensibility because there are many large family run businesses.  This article delves into the nature of family businesses and how it figures into their formula for success.  What the researchers discovered was that family run businesses generally don’t perform spectacularly, even in situations ripe with opportunity, but on the flip side they also tend to stay afloat where others sink.  The focus, then, is resilience.  How do these companies integrate this theme into their overall strategy?

The key concept here is being conservative.  As it turns out, perhaps unsurprisingly, the average family business thinks similarly to how an average family might think – frugally.  The concept of spending only as much as you can afford seems strange in general business practice, but is a strong foundation that family businesses build and rely upon.

As a result of conservative spending, capital expenditures are scrutinized closely and debt is seen as a threat to the family control of the company and thus taken with caution.  Acquisitions of other companies are taken in small quantities at a time; large acquisitions are generally completed in dire ‘make or break’ situations that threaten the future of the company.  In fact, family businesses prefer partnerships and joint ventures to acquisitions – there’s less risk to the family business.  On that note, family businesses generally prefer to grow organically and prefer to be self-reliant rather than put the family’s fortunes in outside hands.

With all this talk of conservative family business practices, one might be surprised to find that family businesses are actually more diversified than their ‘normal’ counterparts by a large margin: 46% of family businesses show a high degree of diversification to 20% of normal businesses.  One would assume that if normal businesses are themselves wary of over diversification then it would follow that family businesses would approach it with an even longer stick.  As it turns out, family businesses either approach these ventures organically or with the view that the new additions are part of an investment portfolio to reduce risk.  With recessions becoming more frequent, some expansions may not be as affected as, for example, the core business, and the revenues generated by these expansions help the company weather the storm and invest in the future when rivals are too busy keeping all hands and feet inside the vehicle.

Lastly, an interesting aspect that the research touched upon was how family businesses approach new markets – with patience.  Because of their resilience, family businesses can be as patient (or stubborn) as a mountain that outlasts everything around it.  For this reason one could say when confronting a well run family business that time is the enemy.

Putting this all in perspective, the research concluded that the success of family businesses is due to their frugal and conservative decision making, which lends a natural resilience against forces beyond their control.  With a low cost structure and aversion to debt, these companies can afford to avoid layoffs and invest in their employees, which leads to higher talent retention.  To keep debt levels low, companies are careful with their decisions that may require financing – such as taking small acquisitions.  In short, the greatest strength of these companies is their resilience, and certainly there is a lot to learn from it.

As an aside, I personally feel that the business environment is already becoming too conservative.  I might just be a cynical jerk (which I am), but I feel that music these days is all starting to sound the same, and Hollywood only seems interested in pushing out remakes, re-imaginings, and reboots.  Is this the pinnacle of ‘capitalism’?  It’s fine if commodity industries are for the most part conservative, but when the arts and sciences must obey the bottom line, then everything stagnates and progress plateaus.

Kachaner, N. & Stalk, G. & Bloch, A. (2012, November). What you can learn from family business. Harvard Business Review, pg. 103 – 106.

Mergers & Acquisitions in banking

The study is exploring the relationship between intergrating Information Technology (IT) and banking mergers and acquisitions (M&A), revealing a significance of IT-related elements in banking M&A integration. The purpose of the research is obtaining the knowledge of IT integration process, its driver, dynamics, and theoretical models and frameworks. 

The study is important in contributing to the knowledge on best practice for IT integration within M&A in banking. Blueprint layout and integration model can be used in guiding and supporting banking M&A transactions. It is important because it is widely considered a critical resource and an enabler in the business of modern banking. On the other hand, it is also a very important element of the post-merger integration, oftern underpinning the realization of a significant part of the projected M&A gains.

Not only using different cases to test how IT –related advantage in M&A and collecting reports from sixty four company reports, white papers and other relevant works but also from interviewing four London- base high ranking bank officials who supervised IT integration in a number of M&A transactions (Citigroup, Nomura, UBS, Deutsche Bank, Lloyds, and Royal bank of Scotland) writer found out some important results that would help people who are still consider about IT – related advantage in M&A.

First, IT – related advantage as a frequent element of the M&A gains. This advantage is achievable and properly enforced guidance for IT integration exists. Even though it might be not enough guidance, the integration might still result in significant unplanned gains if the staff in charged are experienced and keen to deliver, the IT – related advantage then follows as a bonus.

Second, there are some issues for banks or even other enterprises have to face with by using IT. It will be:

-         Lake of clear business strategy

-         Aggressive targets that overstretch organizational and technological capabilities

-         Lake of personnel with relevant experience involved in a timely manner

-         Power struggle between management of the merging organizations.

Third, it takes a number of years after the official completion date for the merged IT infrastructure from previous banks or enterprises before merging. Specially for banking industry, IT capability by large equals the business capability raise some serious implications.

This article would help practicing managers distinguish that M&A IT integration in banking from other types of IT integration process will need some tasks to support the business operations post-merger as quickly as possible. According to “portfolio best of breed” mangers have a chance to minimize the business risks associated with the prolonged IT integration and balance in term of the delivery time and quality.

Key success factors of M&A IT integration is create a clear link between the business strategy driving the merger and the priority of the IT integration tasks, enlarge staff experiences, and motivate employees. Moreover, it will complete the right standard as quickly as possible, whilst the main constraining factors are overly aggressive targets and quality of management decisions.

Source: http://libproxy.uhcl.edu:2057/ehost/detail?vid=3&hid=25&sid=fa87d739-ac30-421f-959c-c42c2cc6f748%40sessionmgr12&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=80122565