Mergers, Acquisitions and International Strategies
Merge Between US Airways and American Airlines
The merger American Airlines and US Airways was one of the largest in the latest history of mergers and acquisitions. Prior to the merger, American Airlines had filed for bankruptcy, which prompted US Airways to stage an acquisition attempt. Several other factors facilitated the merger. During the bankruptcy filing, repercussions were bound to arise for the people who worked for the American Airlines. The unions representing various workers at American Airlines negotiated with the company about the job cuts and contract concessions. The direction of the discussions did not please the unions, which advocated for the merge. Experts have argued that the merger formed the biggest airline in the world and will change competition in the airline industry. Although the process seemed like a merger, it was actually an acquisition of American Airlines by US Airways. US Airways has been very strategic over the years and has seized every opportunity to improve its performance and control competition in the industry. Previously, it had attempted to take over Delta Airways when it filed for bankruptcy in 2006. However, Delta was able to hold off the hostile takeover. The merger between American Airlines and US Airways was a strategy by the US Airways to control the market by getting access of its rivals’ market share. The move by US Airways will benefit the company immensely because American Airlines was actually bigger than US Airways. By acquiring a rival larger than itself, US Airways gained almost a larger portion of the air travel market share than it previously had.
Therefore, the strategy that led to the merger was wise and resulted in the formation of the largest carrier in the world. US Airways gained economies of scale through the acquisition. It can access all the resources previously owned by American Airlines, including its customer base. In the merger, the US Airways stand to be the biggest gainer because its shareholders will get 82% from the proceeds of the new Airline while the remaining percentage will be divided among American Airlines’ creditors and shareholders. Another benefit to the US Airways is becoming the market leader in almost all aspects. This means that it can influence major changes in the industry and be able to control the actions of its competitors. Another reason why the merger was a strategic win for US Airways is that it saved American Airlines shareholders. Although they are currently getting a low rate of return on their investment, they would have lost more if the merger failed and American Airlines was forced to cease its operations. Moreover, once debts owed to American Airlines creditors are settled, the earnings for the shareholders will increase. In addition, the shareholders of American Airlines may feel the urge to continue using the services of the new company to support it generate more profit because they stand to benefit. Therefore, the merger secured a customer base for the new company. The merger reduced the number of players in the airline industry. This means that passengers will have limited choices in terms of airlines to use, which will make the new company the airline of choice. Although the reduced number of airlines may create a monopoly to some extent, US Airways will gain strategically, which justifies the decision to merge
Business Level Strategy
For the newly formed company after the merger, the best business level strategy would be synchronizing systems from the two companies in the merge to reduce discomfort for the customers. When two different systems are merged, there is little congruence. As a result, service quality may drop because of the confusion created by the two systems. The airline industry is a service industry whose success depends on the quality of service rendered to customers. Some of the discomforts that are likely to arise before the two systems are synchronized include loss of luggage by customers and delayed flights. Therefore, merging the two systems should be prioritized. A bad reputation in the service industry can be catastrophic to the performance of an organization. In addition, the remaining competitors will try to take any available chance to snatch customers from US Airways. The best strategy for the company would be providing excellent service to clients. No matter how big US Airlines is, if it provides poor quality services compared to its competitors, its customers will seek competitors’ services.
Corporate Level Strategy
A crucial corporate strategy for the new company would be purchasing new carriers to maximize the added routes and destinations. Since the merger was precipitated by a bankrupcy, it is possible that American Airlines could not purchase enough aircrafts to maximize the available market. Therefore, the beginning of creating a new corporate strategy for the new company would be taking an audit of the available aircrafts and the available traffic. This would determine the number of carriers that need to be purchased to cover the available routes fully. Failure to have this corporate strategy would lead to competitors taking up the chance to meet the needs of the unsatisfied customers (Finlay, 2004). Therefore, evaluating all the routes served by the new company and their needs would ensure that the current market is fully served.
Boston Beer Company
The Boston Beer Company brews craft beer in the United States. The company was founded in 1984, and its headquarters are in Boston. The company manufactures its beer under different brands, which diversifies its product portfolios. Its market capitalization is $3.14 billion and has breweries located in three different states. This allows the company to serve a wide market. In the United States, the alcoholic beverage market is highly competitive, with large companies dominating the market. Multinational companies usually have economies of scale that allow them to play with product prices to fit in the market. In such a market, small players find it hard to compete and must make smart decisions in order to survive. For small companies, the best strategies involve actions that would increase economies of scale, which would eventually increase the ability of the company to acquire a new market share. One such strategy would be acquiring another company. Boston Beer has indicated its ability to compete as demonstrated by its market capitalization. However, for the company to become a major competitor in its industry, it must get involved in acquisitions of other firms. A suitable candidate for an acquisition by Boston Beer would be National Beverage Corp.
National beverage Corp manufactures, markets and sells an assortment of soft drinks, specialty beverages, fresh juices and water. The company has a market capitalization of $ 652 million. It is headquartered in Florida but sells its products throughout North America. By acquiring National Beverage Corp, Boston Beer stands to benefit from increased sales and profits. Market penetration in the beverage industry can be challenging, especially because of the presence of many players. By acquiring National Beverage Corp, Boston Beer will gain access to the company’s distribution channel and selling points. This means that the company will be able to cover an extra geographic area without incurring extra cost since it will use the established distribution channels by National Beverage Corp. The second advantage that will increase Boston Beer’s profits after the acquisition is diversification. Currently, the company deals with alcoholic drinks only. Acquiring National Beverage Corp will expand its portfolio to include the non-alcoholic drinks that were previously sold by National Beverage. Consequently, Boston Beer will be able to enter the soft drink market. It is advantageous for Boston Beer to diversify its portfolio because when one market is affected by economic conditions, the other market can stabilize the performance of the company. In addition, Boston Beer’s market capitalization will increase, which will improve its reputation. The number and performance of a company’s shares in the stock market are usually used as indicators of a healthy performance for that firm. A good performing organization can earn the goodwill of investors (Orcullo, 2007). In addition, the good performance is crucial because it helps a firm to secure finances because the finance providers are more willing to extend assistance to good performing firms than low performing ones.
Business Level Strategy
To gain competitive advantage, the company requires a suitable business-level strategy that fits well with its business model. Since the company has well developed distribution channels and selling points at no extra cost, it can manage to lower the prices of its products to increase its sales volume. Therefore, the best business-level strategy for Boston Beer would be cost leadership strategy. Through cost leadership, the company will set low prices and attract large sales revenues, which will translate to increased profits compared with competitors. The competitors will be forced to set their prices using Boston Beer’s prices as the benchmark. Since Boston Beer has economies of scale, it will afford low prices and yet make profits higher than competitors.
Corporate Level Strategy
The increased profits from the large business after the acquisition can help Boston Beer to create a corporate level strategy (Furrer, 2010). The best corporate level strategy for Boston Beer after the acquisition is to increase the number of brands for the alcoholic and soft drinks. The large distribution channel will facilitate their distribution and the enlarged company will have a reputation, which will increase the products’ preference by customers. In addition, the company can acquire patents from competitors to distribute their products. The Patents would allow the company to access to markets that were exclusive to its competitors. Once the brands increase, the company can create one holding company that will coordinate and run the operations of the company. The holding company is crucial in creating synergy for the company so that its competencies can be enhanced. The penetration into the American market is the first step in preparing to enter the international market. Consequently, the company’s market share will increase and translate to increased profits.
References
Finlay, P.N. (2004). Strategic Management: An Introduction to Business and Corporate Strategy. New Jersey, NJ: Pearson Education.
Furrer, O. (2010). Corporate Level Strategy: Theory and Applications. New York: Taylor & Francis.
Orcullo, N. (2007). Fundamentals of Strategic Management. London: Rex Bookstore.
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