Mergers & Acquisitions Can Result from Strategic Alliances
Alliances frequently result in mergers and/or acquisitions. Partnering relationships, such as joint ventures or strategic alliances, can sometimes lead to a merger or acquisition situation. After companies work together for a period of time and get to know one another’s strengths, weaknesses, and synergistic possibilities, new relationship opportunities become apparent. One could argue that a joint venture or strategic alliance is simply the getting to know each other part of a courtship between companies and that the real marriage does not occur until the relationship has been consummated by a merger or acquisition.
To make the point, Dan McQueen, president, at Fluid Components International (FCI) built a Partnering relationship with Vortab, a small technology company. Vortab produced static mixers, a technology suitable for flow conditioning that complemented FCI’s product offering. While Vortab also had three other distribution partners in addition to FCI, FCI’s volume with Vortab continued to grow to the point that Vortab’s technology became an important part of FCI’s total sales volume. After about three years into the relationship, FCI acquired Vortab.
Because of the close relationship between Vortab Best Lawyers Near Me and FCI, when the Vortab was put up for sale McQueen knew its true value. Resulting from his knowledge, FCI was able to purchase Vortab at a much more realistic price than Vortab’s asking price. The Vortab technology integrated well with FCI’s core competency technology and today FCI also distributes Vortab through some of its non-direct competitors.
The following list demonstrates some of the specific values created or developed from the various organizational blending methods:
· Operational resource sharing
· Functional skill transfer
· Management skill transfer
· Leverage (economies of scale)
· Capability increases
Mergers occur when two or more organizations come together to blend or link their strengths. Also in the deal is a blending of their weaknesses. The hopeful result is a new more powerful organization that can better produce goods and services, access markets, and deliver the highest quality customer service. Mergers offer promise for synergistic possibilities. This is achieved by the blending of cultures and retaining the core strengths of each. In this scenario, a new and different organization generally emerges. The goal is a sharing of power, but usually the strongest rise to the top leadership.
Exxon – Mobil
The Federal Trade Commission gave Exxon and Mobil the green light On November 30, 1999 for their $80 billion merger. The next day the transaction was completed. The merged organization officially became Exxon Mobil Corp. The merger actually brings “the companies back to their roots when they were part of John Rockefeller’s Standard Oil empire. That company was the largest oil firm in the world before it was busted up by the government in 1911.”
At the 1998 announcement of their intention to merge, Mobil chairman, Lucio Noto made a comment about the need to merge. He said, “Today’s announcement combination does not mean rhat we could not survive on our own. This is not a combination based on desperation, it’s one based on opportunity. But we need to face some facts. The world has changed. The easy things are behind us. The easy oil, the easy cost savings, they’re done. Both organizations have pursued internal efficiencies to the extent that they could.”
While part of the deal was the selling of a Northern California refinery and almost 2,500 gas station locations, the divestiture represents only a fraction of their combined $138 billion in assets. Lee Raymond, Exxon chairman, now chairman and chief executive of the merged company said, “The merger will allow Exxon Mobil to compete more effectively with recently combined multinational oil companies and the large state-owned oil companies that are rapidly expanding outside their home areas.”
Exxon Mobil is now like a small oil-rich nation. They have almost 21 billion barrels of oil and gas reserves on hand, enough to satisfy the world’s entire energy needs for more than a year. Yet, there is still the opportunity to cut costs. The companies expect their merger’s economies of scale to cut about $2.8 billion in costs in the near term. They also plan to cut about 9,000 jobs out of the 123,000 worldwide.
AOL – Time Warner