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Example of Synergy: (Case study 2)

The Walt Disney Company, one of the biggest name synergies

known to the world, has been described as a drug that hits you

from every angle with presence in almost every store. Disney'sroad to becoming a successful synergy doesn't stop with just the

obvious entertainment products and services, but targets

audiences from other directions, creating the drug-like effect.

Perhaps the most amazing part of their synergy is their

connections with other huge companies that allow them to

profit from advertisement, merchandise, and other inside deals.

Disney has given exclusive selling rights to such companies as

Coca-Cola, Minute Maid, Kraft, Dole, and McDonalds in their

parks, meaning that no where on Disney property will you findPepsi or a Burger King. This allows the companies to gain profit,

but also Disney often offers deals and Happy Meal toys through

these companies, gaining advertisement, promotion, and yet

another way to surround the public.

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Companies like AT&T, Lego, GM, KODAK, Motorola, IBM, and Xerox have all

sponsored different attractions at the Disney parks, giving them an opportunity

to advertise and show their products while allowing Disney a way to pay for the

production and upkeep of some of the biggest rides there.

How much of the entertainment business Disney has a hand in?

If you can think of a form of entertainment, Disney has a company that goes

along with it. They own 8 magazine and book publishing groups, 17 magazines

including ESPN Magazine and US Weekly, one television network, 15 cable

television stations, 13 international broadcast stations, 29 radio stations, 7

international ventures, 4 television production and distribution companies, 8

movie production and distribution companies, a crude petroleum and natural

gas company, over 660 world-wide Disney Stores, the Walt Disney Internet

Group which provides websites, a video gaming company, 5 music companies

such as Hollywood Records and Mammoth Records, 3 Broadway productions, 3

professional sports franchises including The Mighty Ducks of Anaheim, theAnaheim Angels, and Anaheim Sports Inc, a company called TiVo, over 30 hotels,

4 resorts, and Walt Disney World alone features 4 parks, 22 hotels, 3 water

parks, a huge shopping marketplace, a club district, 3 golf courses, a sports

complex, over 60 table restaurants, and 90 plus fast food services.

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Looking at all of these figures, its is apparent that Disney is a full-fledged

synergy system with ways to target the public from every direction. The

general public most likely has no idea how much Disney owns, and how

much they dominate the world.

Becoming involved with Disney as a consumer is almost impossible to

avoid, since they are able to target the public from every direction,

especially with company affiliates, some of which even the most astute

Disney fan wouldn't know.

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Case study 3: Adidas Reebok Merger Case Study

The sporting goods industry has seen many mergers andacquisitions (M&A) driven by rising competition andindustrial growth. In 1997, Adidas acquired the SalomonGroup for $1.4 billion. In 2003, Nike acquired Converse for$305 million and in 2004 Reebok acquired The HockeyCompany for $330 million.

Adidas and Reebok Two mega brands, with greatstrengths

In August 2005, German adidas-Salomon announced plansto acquire Reebok at an estimated value of 3.1 billion($3.78 billion). At the time, Adidas had a marketcapitalization of about $8.4 billion, and reported netincome of $423 million a year earlier on sales of $8.1billion. Reebok reported net income of $209 million onsales of about $4 billion. While analysts opined that themerger made sense, the purpose of the merger was veryclear. Both companies competed for No. 2 and No. 3positions following Nike.

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Competition with Nike and Puma

Nike was the leader in U.S. and had made giant strides in Europeeven surpassing Adidas in the soccer shoe segment. According to2004 figures by the Sporting Goods Manufacturers Association

International, Nike had about 36%, Adidas 8.9% and Reebok 12.2%market share in the athletic-footwear market in the U.S. Adidas wasthe No. 2 sporting goods manufacturer globally, but it struggled inthe U.S.the worlds biggest athletic-shoe market with half the $33billion spent globally each year on athletic shoes. Adidas wasperceived to have good quality products that offered comfort

whereas Reebok was seen as a stylish or hip brand. Nike had bothand was a favorite brand because of its fashion status, colors, andcombinations. Adidas focused on sport and Reebok on lifestyle.Clearly the chances of competing against Nike were far bettertogether than separately. Besides Adidas was facing stiffcompetition from Puma, the No. 4 sporting-goods brand. Puma had

then recently disclosed expansion plans through acquisitions andentry into new sportswear categories. For a successful merger, thechallenge was to integrate Adidass German culture of control,engineering, and production and Reeboks U.S. marketing- drivenculture.

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Impossible is Nothing On January 31, 2006, adidas closed its acquisition of Reebok

International Ltd. The combination provided the new adidas groupwith a footprint of around 9.5 billion ($11.8 billion) in the globalathletic footwear, apparel and hardware markets.

Adidas-Salomon Chairman and CEO Herbert Hainer said, We aredelighted with the closing of the Reebok transaction, which marks anew chapter in the history of our group. By combining two of the

most respected and well-known brands in the worldwide sportinggoods industry, the new Group will benefit from a more competitiveworldwide platform, well-defined and complementary brandidentities, a wider range of products, and a stronger presenceacross teams, athletes, events and leagues.

Hainer also said, The brands will be kept separate because

each brand has a lot of value and it would be stupid to bringthem together. The companies would continue sellingproducts under respective brand names and labels.

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Hubris

It means extreme pride or arrogance.

Hubris often indicates a loss of contact with reality and an

overestimation of one's own competence or capabilities,

especially when the person exhibiting it is in a position of

power.

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Hubris hypothesis of takeovers

An interesting hypothesis regarding takeover motives wasproposed by Richard Roll. He considered the role that hubris,or the pride of managers in the acquiring firm, may play inexplaining takeovers.

The hubris hypothesis implies that managers seek to acquirefirms for their own personal motives and that the pureeconomic gains to the acquiring firm are not the solemotivation or even the primary motivation in the acquisition.In such cases, managers might pay a premium for a firm that

the market has already correctly valued and as such the prideof management allows them to believe that their valuation issuperior than that of the market.

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Underlying conviction: the market is efficient and can

provide the best indicator of the value of a firm.

Eg. Stock prices of the acquiring firms fall after the marketbecomes aware of the takeover bid. This occurs because the

takeover is not in the best interests of the acquiring firms

stockholders and does not represent an efficient allocation of

their wealth.

On the other hand, the stock prices of the target firms

increase with the bid because the acquiring firm is not only

going to pay a premium but also may pay a premium in excess

of the value of the target.

Thus, the combined effect of the increasing value of the targetand the falling value of the acquiring firm can sometimes be

negative.

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Hubris hypothesis: JUSTIFICATION

There is no gain to be realised from corporate

takeovers primarily because financial markets,

product markets, and labour markets are

assumed to be totally efficient.