Running head: MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 1

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1 Running head: MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 1 Assignment 4: Merger, Acquisition and International Strategies Student s Name Institution

2 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 2 Abstract Mergers and acquisitions have become a key part of global business trends over the past century, becoming a key strategy for business organizations and companies that are seeking to have a faster and solid penetration of the global market. Furthermore, the concept has become a bit commonplace and popular for companies and business organizations that wish to expand their entities as well as experience rapid growth. Also, another advantage that attracts many businesses and companies to merge and acquire is the increased economies of scale that the new business entity will enjoy, as well as an increased market share, reduced competition in case the merger or acquisition is between rivals and fierce competitors and general increase in the revenue and profitability of the given businesses involved in the merger and acquisition. One case study discussed in this paper is acquisition of the Gillette Company by Proctor & Gamble Co. back in 2005, as both were business corporations dealing in the same line of products, namely personal care products. The acquisition, as of 2010, has not delivered with high expectations it had raised for companies as well as their shareholders and even some customers. A case study of a company that operates locally in the United States of America and does not have history of mergers and acquisitions has been examined too. The US Silica Holdings deals in industrial minerals and construction materials, such as sand products. There is room for great improvement, if such a company goes international, either alone, or through a merger and acquisition. Keywords: Mergers and acquisitions, Proctor & Gamble Co., the Gillette Company, US Silica Holdings, market share, profitability.

3 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 3 Assignment 4: Merger, Acquisition and International Strategies Introduction Mergers and acquisitions have been a global trend in world business for many years, with the trend commencing greatly at the turn of the 20 th century. The concept of mergers and acquisitions in business implies a management and corporate strategy that aims at the rapid growth and expansions of a business enterprise, through various means, such as bringing together two business corporations to form one, buying and also selling a business corporation to another, as well as dividing of similar business entities. The ultimate goal of most, if not all, mergers and acquisitions is to improve financial performance of business entities or corporations that are merging and being acquired through the increase of certain business concepts, such as economies of scale, increasing market share and revenue, and in some instances reducing the taxation levels. The latter being in the event that a profitable business corporation acquires a loss maker, since the loss making business entity has a reduced tax liability (De-Pamphilis, 2008). In this paper, two public corporations will be examined, one that has acquired another business corporation and operates internationally and another that does not have a history of mergers and acquisitions and operates solely within the United States of America. In the merger and acquisition part of the paper, the acquisition of Gillette by Procter & Gamble Co. will be examined (De-Pamphilis, 2008). Procter & Gamble Co. is an American multinational company, founded in 1837, that deals in the manufacture of consumer goods, chiefly personal care products, cleaning agents, as well as pet food. Previously, the company also dealt in the line of food and beverages products. The Gillette Company, on the other hand, is also an American Company, founded in 1901, which deals in the personal care products, well known as men s safety razors. As a brand

4 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 4 under Procter & Gamble Co, Gillette continues to produce men and women s safety razors (Neff, 2010). One of the main strategies that led Procter & Gamble Co. to acquire the Gillette Company was largely influenced by the line of products both companies manufacture, which are personal care products. According to evaluation of five years after the Procter & Gamble s acquisition of Gillette, many economy critics believe that Procter & Gamble s bet on Gillette, an acquisition on which they spent $57 billion, has not really paid-off, as it was initially expected. One can attribute it to various factors, key of which is the United States of America s recession and the subsequent Euro-zone economic crisis. It is ascertained to the fact that some of the company s products, mainly Gillette razors, are really pricy. However, on the contrary, Procter & Gamble s executives argue that the deal was indeed worthy and that it has hidden values (Neff, 2010). It would thus seem that five years after the acquisition, it was not very safe decision for Procter & Gamble, since the company has not gained a lot from Gillette in promotional retail programs and cost efficiency. Subsequently, the process suffers from the expected reverse synergy strategy that has failed to materialize due to the fact that reverse synergy is never considered to be a sure business strategy. Moreover, Proctor & Gamble s stocks options have not done well in the securities markets in comparison to some of the key competitors within the same line of production, mainly, Unilever and Colgate-Palmolive Co. It is a sure indication that for the first five years after the acquisition, Proctor and Gamble has not performed all too well. However, it goes without saying that Proctor & Gamble did tap into arguably the most coveted package of brands in Gillette men s shaving line (Neff, 2010).

5 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 5 In its international operations, Proctor & Gamble Co. does employ a number of international business level strategies in order to strengthen its grip on the personal care products and other related products within the global market share. It is also based on the need to have a key competitive advantage over some of its key international competitors, such as Colgate- Palmolive and Unilever. One of the international business strategies that Proctor & Gamble Co. uses is focused on the differentiation strategies of some of the products under its wing. For instance, the Gillette brand has continued to focus on the production of safety razor blades, and under the acquisition, they even make specific razor blades for women, too. Such a strategy ensured that loyal customers of Gillette s products were not lost in the period during and even after the acquisition process (De-Pamphilis, 2008). In terms of international corporate level strategies, Proctor & Gamble Co. has employed transfer of core competencies within the entire company. It has been affected in order to ensure that the sales force, distribution channels, as well as logistical networks of Gillette are engaged in smooth operations in order to help strengthen stability of operations for the company. Furthermore, there has been a lot of restructuring after the acquisition of Gillette in order to improve the company s efficiency level. However, Proctor & Gamble Co. could greatly improve with a much more systematic and stable restructuring program in case it desires to continue dominating the global personal care products market. For instance, five years after the acquisition, most of senior executive managers that propelled the Gillette Company to greater heights have all abandoned the company, with exception of the current Proctor & Gamble s vicechairman. It might have probably impacted negatively on the operations of the company. Furthermore, the company could perhaps diversify some of its immediate macroeconomic and operational risks. It is meant to the affected operations that resulted due to the recession that

6 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 6 heavily hindered profitability of the business entity. Such a diversification could help in the prevailing unstable world economy, where recession and economic crises seem to be looming from the world over. In the business corporation that has not been involved in any mergers or acquisitions over its history, the paper will examine US Silica Holdings. It is an American company, founded over one hundred years ago, in 1910, and its line of dealership is mainly focused on the production of silica sand, aplite, and kaolin clay among other industrial minerals, both of ground and ungrounded quality. US Silica Holdings is highly successful local American company in the line of both construction materials and industrial minerals. However, US Silica Holdings could be more successful in case it could expand its market as well as revenue share of the enormous global market. By going multinational, US Silica Holdings could definitely increase its economies of scale, thereby resulting into rapid growth and massive expansion of the company. It could make the company much more profitable in comparison to its present standings, where it is operating only within the US market. Nevertheless, due to the complexities and dynamic prevailing conditions of successfully penetrating the international market and being established therein, wrong strategic management initiative could easily backfire in the pursuance of such a venture (Badenhausen, 2013). As such, one viable and more secure option a company like US Silica Holdings could pursue would be to get into a merger and acquisition with an already established multinational company within the same line of dealership, which might involve a corporation involved in the manufacture of industrial minerals and other construction materials like numerous types of sand materials. It would not only provide US Silica Holdings with an increased market share, revenue and economies of scale, but also it would further avail the opportunity for US Silica Holdings to

7 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 7 be able to easily diversify its products as well as reduce costs of operating on some sectors, such as marketing. It, in turn, will likely to benefit from enormous levels of skills and knowledge of the other company and also foster an easier market penetration into the huge and sometimes highly competitive global market arena (Badenhausen, 2013). One profitable target that US Silica Holdings could form a merger or acquisition with is the multinational Koch Industries Inc., which is an American company that operates in over 60 countries and is the world leader in mineral exploration and production and other related line of products. This merger would be highly beneficial to US Silica Holdings since it would enjoy Koch Industries Inc. s large world market share, benefit from the economies of scale the merger would facilitate and easily control the larger portion of the world s mineral and construction material production industry. US Silica Holdings can apply certain business level strategies, such as cost leadership initiatives, reconfiguring the value chain where needed, exercising total control on overhead costs as well as production. Furthermore, Silica Holdings can employ differentiation of products, which includes image management, rapid product innovation, top-notch customer service, creating value through sustainability, raising buyers performance and lowering buyers costs among other strategies (Badenhausen, 2013). Undertaking these business level strategies will act favorably towards US Silica Holding gaining a competitive advantage over its competitors in the minerals and construction material industry. It will also enable creation of imminent value to its customers. Likewise, the company can implement various corporate level strategies in order to increase its competitive advantage within the United States of America over its competitors. One strategy would be diversification, due to its excessive resources, especially of silica materials. Sharing activities and transferring

8 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 8 core competencies within the company can also be a valuable corporate strategy option for the company. In conclusion, mergers and acquisitions have become a major international strategy undertaken by many businesses in order to increase their economies of scale, market share and revenue, penetrate the global market and expand their companies generally. However, as envisaged by acquisition of Gillette by Proctor & Gamble, mergers and acquisitions can turn out to be unsafe options or relatively non-profitable for that matter.

9 MERGER, ACQUISITION AND INTERNATIONAL STRATEGIES 9 References Badenhausen, K, (October, 2013). America s best small companies: US Silica Holdings. Forbes.Com. Retrieved from: De-Pamphilis, D. (2008). Mergers, acquisitions, and other restructuring activities. New York: Elsevier, Academic Press. Neff, J. (2010). Why P&G s $57 billion bet on Gillette hasn't paid off big Yet. Retrieved from:

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