An examiner's comments on BUSS4 scripts 2012

Some useful stuff here. Thanks to Mr Mason for the tip off.

http://www.tutor2u.net/blog/index.php/business-studies/comments/buss4-in-june-2012-an-examiners-perspective

The last post: Twelve revision questions

Clearly it is impossible to know what the examiners may ask you on the BUSS4 research topic (unless you are the person who sets the paper!). However, using some of Helen Coupland-Smith's resources and some of my own, I have put together twelve exam-style revision questions (two per bullet point). As part of your revision it would be worth planning how you would respond to these questions.

1.       The motives for takeovers and mergers and how these link with corporate strategy

With reference to the item on Kraft and your own research, to what extent do you think that a corporate strategy of creating synergies is the main motive for takeovers?

With reference to the item on RBS and your own research, to what extent do you think that the personal motives and ambitions of leaders are a main motive for takeovers?  

2.       The problems of takeovers and mergers including difficulties integrating businesses successfully

With reference to the item on JLR/Tata and your own research, to what extent do you think that culture is the main reason for the success or failure of takeovers and mergers?                      

With reference to the item on Lloyds/HBOS and your own research to what extent do you think the practical difficulties of combining different operating systems is the key problem to be overcome when firms integrate?

3.       The factors influencing the success of takeovers and mergers

With reference to the item on BA/Iberia and your own research, to what extent do you think that leadership is the main factor in influencing the success of takeovers and mergers?       

With reference to the item on Kraft/Cadbury and your own research to what extent do you think that the ability to achieve synergies is the key factor influencing the success of takeovers and mergers

4.       The impact of takeovers and mergers on the performance of the businesses involved

With reference to the item on Kraft/RBS/Iberia/JLR (take your pick!) and your own research, to what extent do you think that financial performance is the only important factor in judging the success of a takeover or merger?                   

With reference to the item on Lloyds/HBOS and your own research to what extent do you think that you should judge the success/failure of takeovers and mergers over a period of 5-10 years, rather than being over-concerned with inevitable short-term difficulties?

5.       The impact on, and reaction of, stakeholders to takeovers and mergers

With reference to the item on the BA/Iberia merger and your own research, to what extent do you think that the integration of two or more firms can have a positive impact on all stakeholders?              

With reference to the item on Glencore/Xstrata and your own research to what extent do you believe shareholders are the most important stakeholder group to keep onside when two firms are seeking to merge

6. The reasons why governments might support or intervene in takeovers and mergers.

With reference to the item on foreign takeovers (eg Kraft/Cadbury, JLR/Tata) and your own research, to what extent do you think that the government should intervene to restrict the foreign takeovers of UK businesses?

With reference to the item on the Airline Industry and your own research, to what extent do you think that governments should influence the degree of competition caused by takeovers and mergers within industries?

This is my final post on this blog this year. Any additional help you need please contact me via e mail or in person in the department. Best of luck in the BUSS4 exam - I believe you will do well.

GLW

Big Bucks for Big Mick!

The long running Xstrata / Glencore saga was in the news again a few days ago for the size of the financial package that Mick Davis (Xstrata CEO) is being offered . He has been offered bonuses worth £30 million just to stay when the two companies merge! Other senior managers at the company are also being offered attractive financial packages to encourage them to stay. You can read about it in this report from the Metro newspaper:

http://www.metro.co.uk/news/900867-mining-boss-of-xstrata-offered-30m-to-stay-on-after-glencore-takeover

This issue fits nicely with bullet point 5 on the impact of mergers on stakeholders (remember …………the Xstrata shareholders have already made protests at the perceived undervaluing of Xstrata). If you were to use this example in an essay you could contrast the impact of the merger on one group of stakeholders (the 172 senior managers in Glencore/Xstratsa being offered retention deals) to the response of the shareholders who feel ripped off. In these times of recession it is becoming more common for shareholders to speak out when executive pay appears excessive, particularly if company performance does not seem to justify high rewards.

Latest results show superb performance of JLR (bullet point 4)

29 May 2012: Jaguar Land Rover, the Indian-owned car manufacturer, has reported a 34% rise in profits after sales hit a record high. In 2011-2012 the group made pre-tax profits of £1.5bn, up from £1.12bn the year before. The figures were booted by sales in China which jumped 76%.

The BBC report is below:

http://www.bbc.co.uk/news/business-18256728

Eating the Elephant

I have recently looked back on an article I had published in the Business Review last year on the research topic to see if there is anything that can help you with your revision. The article was called "Eating the Elephant". I have tweaked parts of the article to make it relevant to this year's research topic.

In your revision remember the importance of wow examples :- examples with real depth that would make the examiner go “wow, this student has really done some great research!” Rather than having dozens of examples against each bullet point look for a few really meaty examples against each bullet point (“wow examples”) which linked in with some business studies theory. The inclusion of appropriate counter examples can be especially helpful, particularly if you can explain the difference between the counter-example and the main example. For instance, if discussing a takeover where due diligence was lacking (e.g. RBS/ABN Amro) it could be good to contrast it with an example where a lot of ground work was done before the merger to help it go smoothly (e.g. in the BA / Iberia merger Willie Walsh has claimed that work done prior to the merger in helping to resolve cultural differences was fundamental to the merger's success)

Business Studies theory

You now know a considerable amount of business studies theory and it is essential you don’t lose sight of that. BUSS4 is supposed to be “synoptic” i.e. it brings together the content of the other three units. Consequently, rather than treating the research topic as an entirely separate exercise, try to link the theory into your research whenever you can. For example, if talking about the motives for Tata's takeover of JLR in 2008 why not bring in the fact Tata is a conglomerate business which, almost by definition,  has a strategy of diversification (Ansoff matrix: new products, new markets)

And finally ………….

 In BUSS1, 2 and 3 you have been taught business studies and have done well to survive the course up to this point. Your challenge in BUSS4, particularly in the research task, is to show the examiner that you “live and breathe” business studies. In other words, you need to convince the examiner that you have absorbed the theory and are able to come up with commercially-savvy answers of your own which you can illustrate with a handful of carefully chosen, detailed, real world examples. It may sound like a tall order at this stage; but with a measure of determination and organisation, students can surprise themselves with how well they can perform on the research topic.

Kraft: experience in the cholcolate industry

Something that surprising cropped up in your latest timed essays made me think I ought to make it clear to you all that Kraft had plenty of experience in the chocolate industry before their takeover of Cadbury. Some of the brands in their vast portfolio included Milka, Tobelerone and Terry's.

You can get a feel for the size of the Kraft brands versus the Cadbury brands prior to the takeover by following the link below:


http://www.guardian.co.uk/news/datablog/2010/jan/05/cadbury-kraft-brands-takeover-chocolate-data

Tata: master of the gentle approach

Some cracking quotes in this businessweek.com article on Tata’s approach to takeover & mergers – a very strong contrast to the Kraft approach which we heard from the presentation at RGS. Just a few of the quotes which appealed to me were:

"Tata: master of the gentle approach"

"The Indian giant has found a way to acquire companies across the globe—and still tread lightly"

"More strategic partner than vulture capitalist"

"In all its deals, Tata has been careful to signal its respect for workers"

"It chooses its targets carefully" (due diligence)

"Tata is unusual in that it hasn't laid off any workers or shuttered any facilities following its overseas acquisitions (though it has had layoffs at home in the past decade)"

"Tata buys companies overseas not to reduce costs but to improve [its own] capabilities"

"With its overseas acquisitions, Tata typically leaves executives in place……. allows Tata to stay focused on bigger strategic issues"

You can read the full article here:

http://www.businessweek.com/magazine/content/08_08/b4072064372042.htm

An Anglo-Indian success story

The last major case study we are going to consider is the Tata takeover of Jaguar Land Rover in 2008. Compared with some of the other mergers and takeovers we have studied this is a “good news” story. It is a great example to know really well as it can be applied to so many of the bullet points. You can read some useful reports from the Daily Telegraph by clicking on the links below:

Jaguar Land Rover to create 1,000 jobs

10 Nov 2011

Jaguar Land Rover boosted by Chinese demand

14 Nov 2011

8,000 apply for 1,000 new Jaguar jobs within seven days

17 Nov 2011

JLR to create 1,500 jobs in Merseyside

03 Jan 2012

A bit of personal research here. I had an appointment at the local Halifax branch in Tewkesbury High Street last week and asked the financial advisor what had been the biggest change for him following the merger (bullet point 5 - impact and reaction of stakeholders….). He said the biggest change had been to their computer based administrative systems. He explained that these had not been phased in but had been introduced in a “big bang” on 12 September 2011. He explained how lots of Lloyds’ staff had come over to the Halifax branches at that time to help Halifax staff with any difficulties. All Halifax staff were given workbooks and computer based training and had two days off the job training – a hugely impressive investment in staff training to make it work. Without doubt the transfer of 38 million customers onto a single administrative platform (and the way Lloyds Banking Group got the Halifax staff engaged with this process) is an impressive example of managing change. One you could use for quite a few of the bullet points (e.g. bullet point 2 – the problems of M&T, bullet point 3 - the factors influencing the success of M&T etc.)

Claudia's wow paragraph

Apologies for putting Claudia in the spotlight, but I asked her to type up this wow paragraph from her essay on bullet point 3:-

"One of the major factors which can seriously influence the success of mergers and takeovers is due diligence. If due diligence is not done thoroughly, the prospect of a merger or takeover may not be as positive as the bidding company thinks. For example, when RBS acquired ABN AMRO, they did not carry out satisfactory due diligence. They did not realise how many sub prime related investments were associated with ABN AMRO, and these investments went bad after the takeover had gone through, causing terrible consequences for RBS. Eventually, £1.5 billion had to be written off. If thorough due diligence had taken place before RBS made their offer, RBS could have walked away from the deal and the situation could have been avoided".


C Pallett, 2012

Come on Irene

Superb interview here from 2010 with Irene Rosenfeld, Kraft CEO. She covers the expected synergies of the Cadbury deal (extra $1bn revenue by 2013), how she sees the two companies as "highly complementary", some of the political/media issues in Britain and the closure of the Somerdale factory

The interview can be viewed on youtube here:

http://www.youtube.com/watch?v=aT_5DQIksDo&feature=related

The UK car industry: A case for the benefits of foreign takeovers?

The car industry has so far been a bright spot in the UK economy, with BMW, Toyota & Jaguar Land Rover all announcing plans to increase production at UK plants over the last 12 months. About 1.5m cars will be built in Britain this year, up from 1.4m in 2011 according to the Society of Motor Manufacturers and Traders. This is the fourth consecutive year that there will be an increase in UK car production. The vast majority of these cars will be exported.

It should be considered that all of the UK “top 5” car makers are foreign owned:-

2010 UK top 5 car manufacturers

1 Nissan 423,262

2 Mini 216,302

3 Land Rover 179,165

4 Honda 139,278

5 Toyota 137,054

If a “Cadbury’s Law” had been in place as a barrier to foreign takeovers, would UK car manufacturing be providing as many jobs for British workers?

If you want to read a bit more in support of a view that foreign investment is healthy for the UK economy, there is quite an interesting piece on the BBC site where Jim O’Neill of Goldman Sachs talks about the value of foreign investment in regenerating  Manchester.

http://www.bbc.co.uk/news/business-17269654

In 2010, Mr O'Neill led the so-called “Red Knights” consortium in an unsuccessful attempt to wrest control of Manchester United from its American owners, the Glazer family.

US government blocks mobile merger

Thanks to Jonny Richmond for coming up with a real “wow example” in his essay on government intervention in mergers and takeovers. The example given was of a failed takeover bid from the United States in 2011 where the second largest mobile phone company (AT&T) attempted to takeover the 4^th largest operator (T-mobile USA) in a proposed $39 billion deal. The reasons this deal was eventually dropped was due to government intervention from the U.S. government. The American government actually sued to block AT&T’s acquisition of T-Mobile USA, a deal that would have created the largest carrier in the country. The reason the U.S. government intervened was to protect customers.  James M. Cole, the Deputy Attorney General, said: 

“We believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services”.

This article from the New York Times gives more detail:

http://dealbook.nytimes.com/2011/08/31/u-s-moves-to-block-att-merger-with-t-mobile/

The AT&T/T-mobile USA deal was finally called off in December 2011 with the main reason being the opposition of the U.S. government to the proposed takeover.

Finding "wow examples"

There is a very good section on tutor2u where you can get a list of mergers and acquisitions with associated links to a relevant news article (many of these news items, but not all of them, appear to be BBC articles). This list could be helpful to you when you are looking for one more “wow” example to support your argument in an essay.  

However, remember knowing a few “wow” examples in real depth is far better than having a scattergun and shallow knowledge of dozens of examples. With this in mind, I would particularly recommend that you have a glance at the article on the United Airlines / Continental Airlines merger of 2010 as this supports the work we have done on IAG. Awareness that there is a trend within the airline industry of consolidation is important in any discussion of the various mergers which IAG has been involved in.

Link to airline merger article:

http://www.bbc.co.uk/news/business-11353161

Link to full list of mergers and takeovers:

http://www.tutor2u.net/blog/index.php/business-studies/comments/researchbuster-acquisitions#extended

Victory for Willie Walsh in BMI takeover

European competition authorities have supported IAG’s takeover of BMI, although they have imposed a condition on IAG. This is quite a nice example to bring in to any consideration of bullet point 6 i.e. “the reasons why governments might support or intervene in takeovers and mergers”.

The IAG takeover of BMI has been given the green light so long as IAG relinquish 14 landing slots at Heathrow (but they will still gain 42 extra slots at Heathrow from the merger). Seven of the relinquished Heathrow slots must be sold by IAG to operators providing flights to Edinburgh and Aberdeen (directly addressing Richard Branson’s complaint of a worsening of service to Scotland as a result of the merger). 

In terms of employee impact (a key stakeholder) it looks like many BMI staff will be jobless.

Clearly Willie Walsh and Richard Branson aren’t the best of mates! You can read about it in more detail here:-

http://www.guardian.co.uk/business/2012/mar/30/iag-ba-takeover-bmi-branson

Lloyds/HBOS and your Easter essay

We had a superb session from Richard Tolson of Lloyds Banking Group last week. Over Easter you need to write an essay based on the difficulties of integrating businesses successfully. Some ways which you might be able to use the Lloyds' example are shown in the paragraphs below ......

One of the problems of associated with takeovers and mergers is getting businesses with different cultures to work as a harmonious and effective whole, particularly in the short term. For instance, in the case of the “shotgun wedding” of Lloyds and HBOS of 2008, these two companies had very different approaches to risk and lending; with Lloyds being more  cautious in its approach to lending (i.e. lending less in relation to its capital reserves) and HBOS employing a higher risk strategy. Given the size of the new entity and given that Lloyds and HBOS had two very different organisational cultures there were bound to have been some coordination and communication diseconomies of scale in the early phases of integration. These organisational problems often take time to work through and businesses may not have the luxury of several years in which to turn performance around. This clash of cultures as a problem in mergers is also seen in the example of (PROVIDE YOUR OWN EXAMPLE TO COMPARE AND CONTRAST WITH THE LLOYDS EXAMPLE)

Another common problem firms face in implementing the change involved with a merger is in coping with external events. External events can really blow a merger off course and it can be tricky to separate the effects of the merger on a business’s performance from the effects of external events on performance. For instance, the Lloyds HBOS merger in its early days saw Lloyds share price nose-dive at an alarming rate and the government had to bail the new organisation out to the tune of £20 billion (largely as a result of write off of bad loans made by HBOS). Therefore on the face of it the merger appears to have been beset with problems and it will have been difficult for Lloyds to “sell” the merger as a success to its stakeholders. However, how many of these issues were down to the general economic malaise which affected all banks and to what extent they were due to the integration process on Lloyds Banking Group is incredibly hard to disentangle. Another merger where external events appear to have added to the difficulty of integrating businesses is  (AGAIN, PROVIDE YOUR OWN EXAMPLE TO COMPARE AND CONTRAST WITH THE LLOYDS EXAMPLE)

Upgate on IAG/BMI

The UK's Office of Fair Trading (OFT) has decided not to review IAG's deal to buy BMI. The decision on whether to approve the deal will remain with the European Commission.

You can read the full story here:

http://www.bbc.co.uk/news/business-17258825?utm_source=twitterfeed&utm_medium=twitter

Mega mining deal: a marriage made in Heaven?

The proposed merger between Glencore and Xstrata is something we will consider this week in the context of the motives for mergers. If the deal goes through it will create the world's biggest mining company. It would be good if you could read about it in advance: •http://www.bbc.co.uk/news/business-1690781616907816

•http://www.guardian.co.uk/business/2012/feb/07/glencore-xstrata-confirm-90-billion-merger7/glencore-xstrata-confirm-90-billion-merger

British Airways

British Airways provides a great case study for mergers and acquisitions. I reckon it is relevant for these bullet points in particular:-

●the motives for takeovers and mergers and how these link with corporate strategy

● the impact on, and reaction of, stakeholders to takeovers and mergers

● the reasons why governments might support or intervene in takeovers and mergers.

BA merged with Iberia in 2010 (the deal was ratified by shareholders of both companies at the end of the year). Now IAG (the merged BA-Iberia) is seeking to takeover BMI. If this deal goes through it will give the company over 50% of the landing slots at Heathrow; no doubt one of the reasons Sir Richard Branson is pushing the message that this deal will be bad for the customer. The links provide useful background detail on the story and will enable you to build a “wow” example

http://www.bbc.co.uk/news/business-16307572 

http://www.guardian.co.uk/business/2011/dec/22/ba-owner-iag-virgin-buy-bmi

http://www.bbc.co.uk/news/business-11862956

Bullet Points

Here are the 6 bullet points for the research theme. We will need “wow examples” for each of them

Research Theme – Takeovers and Mergers

In your research on takeovers and mergers you should consider:

● the motives for takeovers and mergers and how these link with corporate strategy

● the problems of takeovers and mergers including difficulties integrating businesses successfully

● the factors influencing the success of takeovers and mergers

● the impact of takeovers and mergers on the performance of the businesses involved

● the impact on, and reaction of, stakeholders to takeovers and mergers

● the reasons why governments might support or intervene in takeovers and mergers.

You are strongly recommended to compare and contrast a number of different takeovers and mergers.

I will be using this blog to support the teaching and learning of Business Studies at King's School Worcester.

It will especially be used to support the BUSS4 research topic.