Introduction
Growth is a primary objective of any organization as it ensures that a company is progressing. There are various growth strategies, and one of these strategies is the acquisition and merger strategies. It is an important strategy that takes tremendous amounts of critical thinking and analysis before the decision is made. The strategy is also a repositioning technique that a company can use in strategically placing itself and its products at a strategic position in the market that promises better profits. All in all, it is a means through which companies can use to maximize their profits provided the right decisions are made. To understand the significance of acquisition and mergers, this essay will compare two organizations where one has utilized the strategy and the other has not. That will shed light on the importance of acquisition and mergers as a corporate strategy.
Disney operated by itself until 2006 when Walt Disney decided to buy Pixar Company for a net worth of 7.4 billion dollars. Pixar is a company that deals in the sale of high-end hardware. That is, it dealt in selling computers to government and medical agencies. It was a coincidence that one of the clients of the computers was Disney which was utilizing the computers for a certain project called CAPS. The project entailed updating their paint and ink method used in the creation of their two dimension animation. The owners of the company disagreed on the merger in 2004. Steve Jobs wanted Disney to distribute only while Disney had the capacity to control the products as well as get the ownership of the films. However, the merger details were sealed by May 5th of 2006.
The merger between Pixar and Disney was a vertical type of merger since their aims align. Pixar was a company that specialized in computers and animation technology while Disney had the motive to create cartoon films with the help of the technology from Pixar (Gillam and Wooden, 2008). Thus, the merger is between two industries that operate within the same industry but occupy different stages of the production process. It is also referred to a merger backward integration merger by scholars because Disney purchased its supplier. During the merging process, Disney and Pixar engaged in two alliance types. Sales alliance involved both companies will unite their effort to maximize their profits by ensuring that they market the products together. The second alliance was the investment alliance where the animation movies and pictures that they create will be an investment of both companies.
A possible reason behind the merger was that the companies’ strategist wanted the company to tap into the synergies that would result in combining these companies. Synergy can be described as the greater outcome that comes out of combining two firms or activities (Tavor, 2013). Therefore, these companies showed more promise working together than in separate. Pixar was a supplier to Disney which means that they exchanged costs and benefits. However, once they merged, these costs are now shared between the two companies. Moreover, the customer numbers increase because the companies now share a common customer base. The profit margins of the companies increase because the operational costs that were engaged in transacting individually have been minimized. The talent pool of the companies increases since the workforce of the companies come together for a common goal. That ensures that the workforce is much more effective in meeting its objectives.
Another reason for the merger was that Pixar, as an individual company, was short of resources that would enable it to generate income. That was a weakness for the company since it would have directly resulted in the entropy of the organization. Therefore, in a general sense, the merger was a turnaround strategy for Pixar to survive. Being unable to meet its operational costs and gain profit, it was just a matter of time before Pixar would have lacked the means to survive (Gillam and Wooden, 2008). It was also a strategy on Disney’s part to ensure that it still got the animation technology that it required for the production of animation movies and motion pictures. At the time, Pixar Company was the main producer of computer-based animation technology which was crucial for the production processes at Disney. Since Pixar was facing financial difficulties, it meant that Disney would engage in more expenses looking for another supplier.
That prompted Disney to merge with Pixar so as to ensure that the technology was even closer to the company. That ensured that operations at Disney were smoother. Before the merger, Disney was hand-drawing its animation. That accentuates just how significant the merger was to Disney as well. Another reason for the merger was that it enhanced the branding of the products of the companies. Since they are in the same line of production (though at different levels of the value chain), they both had individual brands that had market influence. By merging these brands, the companies had greater influence. A bigger brand meant higher merchandise prices which would increase the profit margins of the company (Tavor, 2013). Thus, with these advantages to the firms, this merger was a wise choice for them. Today, the products of the company are highly priced and of better quality.
A company that operates within the boundaries of the United States of America is the Cedar Fair Entertainment Company. The reason for this choice is the fact that it is in the same line of business as Disney: entertainment. It has no history of acquisition and mergers. The primary business of Cedar Fair is to sell fun. The company has over fourteen parks in the country with its base of operations being in Ohio. The firm has a number of properties that it operates including waterfront properties. The only thing that the company lacks is a means to operate beyond the borders of the country. It has the products to sell beyond the borders since it is a business that sells fun products. Thus, its products are universal in that its customers (children) are everywhere in the world.
The best candidate for a merger with Cedar Fair is the Mills James production primarily because they are based in the same state. With their base of operations being close, it is easier for the companies to operate. There might not even be a need for a change in the venue since they are close. With technological advancements, these companies can develop a communication link which they can use to share their resources. Another reason why this is the best candidate for a merger is that it is a media company that can be instrumental in selling the products of Cedar Fair (Choi, 2010). Cedar Fair loses its income trying to advertise its products which is expensive. The creation of movie advertisements, bill boards as well as making a media presence costs the company a lot of its financial resources. Merging these two companies can reposition the company more strategically allowing the industry to maximize its profits through cost reduction.
Mills James production is a productions company that owns its private media and studio productions in various parts of the country. It can engage in producing media advertisements for the Cedar Fair Company at no costs which will ensure that the company can have a large media presence. Creating awareness will ensure that many people know about the fair and the facilities of the company increasing the number of potential clients (Choi, 2010). The companies are not in the same line of business which will mean that the integration of their production protocols will be much easier. Their link is only superficial in that ownership is the linkage and not the production line. Another reason why the merger is a good strategy is that these companies have considerable market share and influence which they can bring together to ensure a more profitable future for both companies.
Pooling their resources would ensure that the company has the required level of resources to transcend the borders of the country and operate internationally. The productions of Mills James Company have an audience outside the United States of America. That means that Cedar Fair can utilize this influence to increase its operations to create high-class fun areas for its customers all over the world. The merger also means that the company will be refurnishing its brand by making it bigger and better. The two companies are highly reputed in their production lines. Thus, the resultant brand will be more valuable. Mills James is also a profitable merger target because there are needs that the Cedar Fair can fulfill. For instance, Cedar Fair can be instrumental in providing Mills James an audience for its products.
As a production company, it needs an audience to appreciate the products. For instance, in the amusement parks belonging to Cedar Fair, there can be movie theaters at each one of them where Mills James Company can show its products. Both companies can benefit from these proceeds as well where they get the ticket fee profits. The production company will get a customer base for its products since the people will be aware of the quality of work it does. When the clients from the Cedar Fair come by the fairgrounds, they have a chance to assess the quality of the work that the production company which can be instrumental in the creation of a strong company image. Therefore, it is a win-win situation for both companies which means that both companies stand to benefit greatly.
Conclusion
There are times when a company needs turnaround strategies. For instance, if the profits are low or even when there is a threat of entropy. A company will need to refocus its efforts and strategies towards dealing with the problem. A good example will be Pixar which was facing a financial crisis that was threatening the company’s survival. The business level strategy that it embraced was that it merged with Disney. That ensured that Pixar was able to get financial aid and maximize its profits at the same time. For Cedar Fair, it may not have felt the need for a merger, but it is instrumental towards the company having a better financial strength. The merger will enable the company to have the ability to operate outside the country successfully. The merger also has non-monetary advantages such as having a much larger and more efficient workforce.
References
Choi, A., & Triantis, G. (2010). Strategic Vagueness in Contract Design: The Case of Corporate Acquisitions. Yale Law Journal, 119(5), 848-924.
Gillam, K., & Wooden, S. R. (2008). Post-Princess Models of Gender: The New Man in Disney/Pixar. Journal of Popular Film & Television, 36(1), 2-8.
Tavor, T. (2013). The influence of mergers on the capital market. Israel Affairs, 19(3), 562-579. doi:10.1080/13537121.2013.799870
