Merger, Acquisition, and International Strategies

Merger, Acquisition, and International Strategies

 

INTRODUCTION

Evaluation and opinion of the strategy that led to the acquisition of Skype Technologies by Microsoft Corp 

Mergers and acquisitions are corporate strategies used by companies to grow their revenue base and survive in unpredictable and turbulent business environments. Firms undertake mergers and acquisitions sometimes to compete or to diversify into new geographical areas. Companies can also undertake mergers and acquisitions to reap the benefits of economies of scale and economies of scope (Kellner, 2011). Some companies also take over loss making firms to reduce their tax liability to the state. Mergers occur when firms merge to form a new entity whereas acquisitions take place when a company buys the controlling equity stake in a company or the assets of a target company. One of the latest acquisitions undertaken by Microsoft was the acquisition of Skype for the sum of $8.5bn which was Microsoft’s single largest acquisition deal ever.  Microsoft’s acquisition of online telephone service, Skype, broadened Microsoft’s competition with its traditional competitors namely Google and Apple Inc. (Bradshaw, Palmer & Waters, 2011).

Skype, founded in 2003, was acquired by eBay in 2005 for $2.6 billion dollars but the acquisition did not pay off in terms of envisaged benefits as anticipated. EBay sold Skype later in 2009 to a group of tech investors. Despite these initial setbacks Skype was quite successful in getting a large client base (PR Newswire, 2011).   In fact as at the time of the acquisition by Microsoft, Skype’s monthly average users stood at 145million.  The main reason for the increased number of users and subsequent increase in profits was the ability of Skype to connect people throughout the globe. Skype is now the largest medium of communication for both professional and personal use (Kellner, 2011). Skype service is offered as a computer to telephone program or computer –to -computer program throughout the world. Skype communication devises can be located in close proximity to each other as in the same building or in locations in far flung countries in different continents of the world.  The company made its revenues by supporting paid services within its systems known as SkypeOut, SkypeIn and voice mail.  Skype made it easier to make international telephone calls via the user’s computer which was at times cheaper than competitor’s ratings for the same service (Kellner, 2011).  Skype enables users to text voice or video each other on the internet. It enables users to share experiences, hold meetings, tell stories, pass important information, celebrate birthdays or share jokes irrespective of their locations in the world. Skype Technologies enabled users to access Skype through common modern tech devices of mobile phones, TVs and computers (Bradshaw, Palmer & Waters, 2011).

Microsoft is an American multinational corporation which is headquartered in Redmond, Washington. The company was founded in 1975 by Bill Gates and Paul Allen. Microsoft is currently the world’s largest developer and seller of computer software, computer solutions and services. The company develops, manufactures, licenses, sells and supports   computer software, personal computers, consumer electronics and services

(http://www.microsoft.com/en-us/default.aspx).  The company’s best known software products are the Microsoft windows line of operating systems, internet explorer web browser and Microsoft office suite which are used throughout the entire world. The company also deals in Microsoft surface series of tablets and Xbox game console; which are mainly hardware products (Bradshaw, Palmer & Waters, 2011). Microsoft has undertaken many acquisitions and entered into mergers with many companies throughout the world such as the recent acquisition of Nokia hand set and services business, Skype technologies etc.  Skype become a division within Microsoft after the acquisition deal was sealed. Microsoft thereafter was reorganized according to functions by the chief executive officer.

The principle strategic objective of the merger was to broaden Microsoft’s competition against Google and Apple. Microsoft’s competitive strategy was to leverage Skype’s estimated 145million active users on average per month and its existing devises and software platforms to boost the appeal for its products in the market. It was therefore a strategy aimed at boosting sales revenues for its various product lines and beat the competition (Bradshaw, Palmer & Waters, 2011). Microsoft wanted its customers for its hardware devices such as Xbox console and users of Windows Phone and Outlook e-mail to be able to communicate with each other through Skype network. The merger was therefore also aimed at enhancing customer satisfaction to achieve greater levels of customer loyalty to boost revenues by enhancing Microsoft’s value proposition to its customers. Senior executives at Microsoft and Skype held that the deal would give Microsoft an opportunity to enter the booming social networking business by leveraging Skype’s status updates and contacts to link users and boost sales of Microsoft’s products(Bradshaw, Palmer & Waters, 2011).  In my opinion the decision was wise because it gave Microsoft an opinion to enter the booming social networking business to grow its revenues. The deal also enabled Microsoft to enhance its value proposition which enhanced customer satisfaction and loyalty. From Skype’s stand point the decision was also wise as it enabled it to get into a deal with a more established multinational with deep pockets. The company will benefit from the technical and software development skills of Microsoft to improve its current product offering. The company also will benefit from the reputation that Microsoft has in the world to enter new territories and geographical regions.

Probable benefits of a possible merger of Novelos Therapeutics, Inc. and Advaxis, Inc.

Novelos Therapeutics, Inc. is a public pharmaceutical company which engages in the development of chemical compounds for diagnosis and treatment of cancer.  The company was founded in 1996 and was registered as AVAM International Inc.  The company adopted the name Novelos Therapeutics, Inc. in 1998 after AVAM International Inc. joined Novelos Therapeutics Inc.  The company does not have a history of mergers and acquisitions like Microsoft Corp. The company main products are three cancer-targeted compounds known as LIGHT, HOT, GLOW2 and Cold which are used for diagnosis and treatment of cancer (http://www.novelos.com/). The company has an asset base of about USD$ 20 Million. Novelos Therapeutics Inc. can reap immense benefits by merging with Advaxis Inc.  Advaxis, Inc. is a clinical development stage biotechnology company which deals in the development of immunotherapies for infectious disease and cancer. It uses live attenuated bacteria that are bio-engineered to secrete an adjuvant fusion protein that is aimed at boosting human immune system and redirecting the boosted immune system to fight cancer cells in a patient’s    body.  The company has developed a chemical compound callled ADXS-HPV which is being evaluated in Phase 1 and Phase 2 in clinical trials stage for HPV-associated diseases including anal cancer, invasive cervical cancer and HPV-associated head and neck cancer.  The company has up to 15 compounds at various stages of development. Advaxis, Inc. asset base is currently at about USD $5 million (http://www.advaxis.com/)

. Both companies are listed on the securities exchange. If Novelos Therapeutics, Inc. merges with Advaxis, Inc, they will both reap many benefits from the merger. The benefits that can be derived from a merger of both companies could include growth in asset base which can be relied upon to obtain financing for expansion. The other benefit could be sharing of skills and information on cancer research which could help the companies to develop better and more efficient compounds for treating cancer and other infectious diseases. The companies could also access more financing through capital markets jointly than individually. The companies will also benefit from the joint management expertise drawn the pool of managers that will be brought on board into the new company. The companies will also benefit from economies of scale and scope. The companies will also complement each other in research and development of cancer drugs and hence obtain synergies in the business. Novelos Therapeutics, Inc will also grow its product lines by adding onto its existing product lines new product lines that are handled by Advaxis, Inc which will translate in a bigger market share and revenues.

Microsoft’s international business-level strategy and international corporate-level strategy and recommendations for improvement

On the business level strategy, Microsoft is organized into four divisions in line with PC mature business divisions by function namely Operating System, Apps, Cloud and Devices. These divisions a headed by a division head who reports to the chief executive officer. The division head in charge of each strategic business unit or division is charged with setting the strategic direction of the division, formulating strategic goals and objectives and laying out strategic tactics that will enable achievement of the strategic objective and goals of the division (Massingham, 2004). The strategic objectives of each division are derived from the corporate level strategy which is the overall strategy that guides the entire organization. Business level strategy is responsible for tactical and strategic operations of each division. Even though this business level strategy seems plausible, i could recommend that the organization organizes its business by products instead of by functions. This is because the company has products in different stages of the product life cycle. Lumping together mature products with products that are declining in the market may not assist the business because each product at each stage requires different strategies. The company is headed by a board of directors who direct the corporate level strategy (Sharma, 2004). The board of directors makes decisions touching on the strategic direction of the forms. The directors make decisions relating to the business that the company is supposed to be in and the business that the company should be in. On this level i would recommend that the company. The company’s current strategy of embrace, extend and extinguish could be repealed (Watson & Wooldridge, 2005). This is because the strategy which is at the corporate level creates an aggressive culture among employees.  The company should at ways of embracing corporate social responsibility strategies and also a flanker strategy instead of offensive strategy. The more it pursues the aggressive strategy the more it will face antitrust suits and increasing negative publicity. A flanker strategy will enable the company to develop new products that meets needs that have not been met or have not been identified even though they exist (Sharma, 2004).

An evaluation of the proposed Novelos Therapeutics, Inc one business-level strategy and one corporate-level strategy

For Novelos Therapeutics, Inc. the most ideal business level strategy that would meet this company’s business level objectives is by organizing itself according to functions. This will enable the company to identify skill sets that can drive each function. This will assist in sourcing for competent professionals for each function identified. The company should also adopt an organic structure (Watson & Wooldridge, 2005). This is because an organic structure is ideal for relaxed environments where tasks performed are mental in nature. In an organic structure the level of control is reduced and the organizational structure is more flat (Sharma, 2004). It encourages sharing of opinions and ideas. This structure will enable professionals within the company to interact with each other and share their findings freely which will enable development of new chemical compounds for treatment and management of cancer. At the corporate level strategy the company should form board committees to look at various affairs in the company. The company should invest more in research and development and should embrace mergers and acquisitions with medical research companies that are involved in cancer to get more skills and findings which will help them to develop new medicines for the treatment of cancer. The company should also seek to integrate forward by forming mergers with large drug retailing companies like Pfizer Inc which can use its established distribution markets to sell. Such a strategy will enable the company to sell more and access finances for expansion (Massingham, 2004).

References

Bradshaw, T., Palmer, M., & Waters, R. (2011, May 11). Microsoft’s skype gamble. Financial Times. Retrieved from http://search.proquest.com/docview/865917178?accountid=45049

http://www.novelos.com/

http://www.advaxis.com/

http://www.microsoft.com/en-us/default.aspx

Kellner, M. A. (2011, May 11). KELLNER: It’s the post-merger, folks, after deal for skype.McClatchy – Tribune Business News. Retrieved from http://search.proquest.com/docview/866064091?accountid=45049

Massingham, P. (2004). Linking business level strategy with activities and knowledge resources. Journal of Knowledge Management, 8(6), 50-62. Retrieved from http://search.proquest.com/docview/230331717?accountid=45049

Sharma, B. (2004). Marketing strategy, contextual factors and performance: An investigation of their relationship.Marketing Intelligence & Planning, 22(2), 128-143. Retrieved from http://search.proquest.com/docview/213159566?accountid=45049

Skype in possession of microsoft. (2011, Oct 19). PR Newswire. Retrieved from http://search.proquest.com/docview/898857241?accountid=45049

Watson, A., & Wooldridge, B. (2005).Business unit manager influence on corporate-level strategy formulation. Journal of Managerial Issues, 17(2), 147-161. Retrieved from http://search.proquest.com/docview/194166206?accountid=45049

 

 

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