Choosing Between Strategic Options Risk Mergers and Acquisition

Strategy Session 8

Choosing Between Strategic

Options

Risk

Mergers and Acquisition

Choosing a strategy

from among strategic options

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Logically viable options/

Chosen Strategy

Choice Criteria/

No options identified

Macmillan &

Tamcoe 2001

Strategic Choice

• Ideally a company will have a number of options for growth. Each can then be assessed using for example a 5 Forces analysis to rank them for attractiveness. But there are also other issues to consider particularly ‘risk’.

Risk vs Uncertainty

• Risk implies that the probability of outcomes can be usefully quantified...there is a 10% chance of rain today

• Uncertainty implies that whether the outcome is possible is unknown and thus the risk cannot be quantified.....the policies of the next government are uncertain

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Magnum Price Survey 2015

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Bayesian (Statistics) Thinking

• A 10% chance of a profit of £1m is worth £100,000.

• Which would you go for: (1) a 45% chance of winning £1000 with (2) a 75% chance of winning £600. The investment needed for(1) is £250 and for (2) £150.

• (1) 1000x0.45-250=£200

• (2) 600x.75-150=£300

A Merger Example

• If A&B merge potential cost savings p.a. are £100m on combined turnovers of

£2000m. Can you evaluate the acquisition?

• 50% chance of success of savings =£50m, the maximum premium you should pay

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 Diversification Matrix

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 Diversification Matrix

Diversification Rules