Answer question 1 and 2 please.

1)Based on Problems in Achieving Acquisition Success, explain (speculate if necessary) how each of the 7 problems may or may not apply to ATT's acquisition of TWC.

2)In the lecture notes is a short list regarding Effective Acquisitions; which of these do you speculate will apply to ATT if the acquisition is approved?

Below are notes:

Problems in Achieving Acquisition Success

Research suggests that perhaps 20 percent of all mergers and acquisitions are successful, approximately 60 percent produce disappointing results, and the last 20 percent are clear failures.

Successful acquisitions generally involve a well-conceived strategy in selecting the target, the avoidance of paying too high a premium, and employing an effective integration process.

Integration Difficulties

Integration problems or difficulties that firms often encounter can take many forms. Among them are:

Melding disparate corporate cultures

Linking different financial and control systems

Building effective working relationships (especially when management styles differ)

Problems related to differing status of acquired and acquiring firms' executives

Inadequate Evaluation of Target

Due diligence is a process through which a firm evaluates a target firm for acquisition. In an effective due-diligence process hundreds of items are examined in areas as diverse as the financing for the intended transaction, differences in cultures between the acquiring and target firm, tax consequences of the transaction, and actions that would be necessary to successfully meld the two workforces.

Due diligence is commonly performed by investment bankers, accountants, lawyers, and management consultants specializing in that activity, although firms actively pursuing acquisitions may form their own internal due-diligence team.

Firms often pay too much for acquired businesses:

Acquiring firms may not thoroughly analyze the target firm, failing to develop adequate knowledge of its true market value.

Managers' overconfidence may cloud the judgment of acquiring firm managers.

Shareholders (owners) of the target must be enticed to sell their stock, and this usually requires that acquiring firms pay a premium over the current stock price.

In some instances, two or more firms may be interested in acquiring the same target firm. When this happens, a bidding war often ensues and extraordinarily high premiums may be required to purchase the target firm.

Large or Extraordinary Debt

In addition to overpaying for targets, many acquirers must finance acquisitions with relatively high-cost debt.

A number of well-known and well-respected finance scholars argue in favor of firms utilizing significantly high levels of leverage because debt discourages managers from misusing funds (for example, by making bad investments) because debt (and interest) repayment eliminates the firm's "free cash flow."

Inability to Achieve Synergy

Acquiring firms also face the challenge of correctly identifying and valuing any synergies that are expected to be realized from the acquisition. This is a significant problem because to justify the premium price paid for target firms, managers may overestimate both the benefits and value of synergy.

To achieve a sustained competitive advantage through an acquisition, acquirers must realize private synergies and core competencies that cannot easily be imitated by competitors. Private synergy refers to the benefit from merging the acquiring and target firms that is due to the unique assets that are complementary between the two firms and not available to other potential bidders for that target firm.

Too Much Diversification

In general, firms using related diversification strategies outperform those using unrelated diversification strategies. However, conglomerates (i.e., those pursuing unrelated diversification) can also be successful.

When they lack a rich understanding of business units' strategies and objectives, top-level managers tend to emphasize the financial outcomes of strategic actions rather than the appropriateness of the strategy itself.

This forces division or business unit managers to become short-term performance-oriented.

The problem is more serious when manager compensation is tied to short-term financial outcomes.

Long-term, risky investments (such as R&D) may be reduced to boost short-term returns.

In the final analysis, long-term performance deteriorates.

The experiences of many firms indicate that over diversification may lead to ineffective management, primarily because of the increased size and complexity of the firm. As a result of ineffective management, the firm and some of its businesses may be unable to maintain their strategic competitiveness. This results in poor performance.

Managers Overly Focused on Acquisitions

If firms follow active acquisition strategies, the acquisition process generally requires significant amounts of managerial time and energy.

For the acquiring firm this takes the form of:

Searching for viable candidates

Completing effective due diligence

Preparing for negotiations with the target firm

Managing the integration process post-acquisition

The desire to merge is like an addiction in many companies: Doing deals is much more fun and interesting than fixing fundamental business problems.

Due diligence and negotiating with the target often include numerous meetings between representatives of the acquirer and target, as well as meetings with investment bankers, analysts, attorneys, and in some cases, regulatory agencies. As a result, top-level managers of acquiring firms often pay little attention to long-term, strategic matters because of time (and energy) constraints.

Too Large

Firms can reach economies of scale by growing. But after a certain size is achieved, size can become a disadvantage as firms reach a point where they suffer from what is called "diseconomies of scale." This implies that problems related to excess growth may be similar to those that accompany over diversification.

Other actions taken to enable more effective management of increased firm size include increasing or establishing bureaucratic controls, represented by formalized supervisory and behavioral controls such as rules and policies designed to ensure consistency across different units' decisions and actions.

On the surface (or in theory), bureaucratic controls may be beneficial to large organizations. However, they may produce overly rigid and standardized behavior among managers. The reduced managerial (and firm) flexibility can result in reduced levels of innovation and less creative (and less timely) decision making.

Effective Acquisitions

Research has identified attributes that appear to be associated consistently with successful acquisitions:

When a firm's assets are complementary (highly related) with the acquired firm's assets and create synergy and, in turn, unique capabilities, core competencies, and strategic competitiveness

When targets were selected and "groomed" through earlier working relationships (e.g., strategic alliances)

When the acquisition is friendly, thereby reducing animosity and turnover of key employees

When the acquiring firm has conducted due diligence

When management is focused on research and development

When acquiring and target firms are flexible/adaptable (e.g., from executive experience with acquisitions)

When integration quickly produces the desired synergy in the newly created firm, allowing the acquiring firm to keep valuable human resources in the acquired firm from leaving

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