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In 2010, about one-fourth of U.S. homes used only cell phones, and cable behemoth Comcast, with 7.6 million residential and
business phone subscribers, ranked as the nation’s fourth largest landline provider. CenturyTel has no intention of moving into the
wireless and cable markets, which are maturing rapidly and are highly competitive.
While neither Qwest nor CenturyTel owns wireless networks and therefore cannot offset the decline in landline customers as
AT&T and Verizon are attempting to do, the combined firms are expected to thrive in rural areas where they have extensive
Discussion Questions
1. How would you describe CenturyTel’s business strategy? Be specific.
2. Describe the key factors both external and internal to the firm that you believe are driving this strategy.
3. Why might the acquisition of Qwest be described as defensive?
Oracle Continues Its Efforts to Consolidate the Software Industry
Oracle CEO Larry Ellison continued his effort to implement his software industry strategy when he announced the acquisition of
Siebel Systems Inc. for $5.85 billion in stock and cash on September 13, 2005. The global software industry includes hundreds of
firms. During the first nine months of 2005, Oracle had closed seven acquisitions, including its recently completed $10.6 billion
hostile takeover of PeopleSoft. In each case, Oracle realized substantial cost savings by terminating duplicate employees and
related overhead expenses. The Siebel acquisition accelerates the drive by Oracle to overtake SAP as the world’s largest maker of
business applications software, which automates a wide range of administrative tasks. The consolidation strategy seeks to add the
existing business of a competitor, while broadening the customer base for Oracle’s existing product offering.
Oracle’s intensifying focus on business applications software largely reflects the slowing growth of its database product line,
which accounts for more than three fourths of the company’s sales.
Siebel’s technology and deep customer relationships give Oracle a competitive software bundle that includes a database,
middleware (i.e., software that helps a variety of applications work together as if they were a single system), and high-quality
customer relationship management software. The acquisition also deprives Oracle competitors, such as IBM, of customers for their
services business.
Discussion Questions:
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1. How would you characterize the Oracle business strategy (i.e., cost leadership, differentiation, niche, or some
combination of all three)? Explain your answer.
Answer: The business strategy can best be described as a cost leadership strategy focused on business application
software in which Oracle seeks to add the revenue from acquired companies without taking on much additional cost
and to achieve revenue growth for its existing product lines by cross-selling its current products to the customers of
2. What other benefits for Oracle, and for the remaining competitors such as SAP, do you see from further industry
consolidation? Be specific.
3. Conduct an external and internal analysis of Oracle. Briefly describe those factors that influenced the development
of Oracle’s business strategy. Be specific.
Answer: From an external point of view, Oracle’s core product offering, database software, is maturing. Since the
product represents three-fourths of the firm’s revenue, it is unlikely to achieve rapid growth as long as it remains
4. In what way do you think the Oracle strategy was targeting key competitors? Be specific.
Answer: The strategy targets competitors by eliminating partners with whom competitors had worked to augment
HP Redirects Its Mobile Device Business Strategy with the Acquisition of Palm
With global PC market growth slowing, Hewlett-Packard (HP), number one in PC sales worldwide, sought to redirect its business
strategy for mobile devices. Historically, the firm has relied on such partners as Microsoft to provide the operating systems for its
mobile phones and tablet computer products. However, the strategy seems to have contributed to the firm’s declining smartphone
sales by limiting its ability to differentiate its products and by delaying new mobile product introductions.
HP is hoping to leverage Palm’s smartphone operating system (webOS) to become a leading competitor in the rapidly growing
smartphone market, a market that had been largely pioneered by Palm. HP hopes that webOS will provides an ideal common
“platform” to link the firm’s mobile devices and create a unique experience for the user of multiple HP mobile devices. The intent
is to create an environment where users can get a common look and feel and a common set of services irrespective of the handset
they choose.
Discussion Questions
1. To what extent could the acquisition of Palm by HP be viewed as a “make versus buy decision” by HP?
2. How would you characterize the HP strategy for mobility products (cost leadership, differentiation, focus, or a hybrid) and why?
BofA Acquires Countrywide Financial Corporation
On July 1, 2008, Bank of America Corp (BofA) announced that it had completed its acquisition of mortgage lender Countrywide
Financial Corp (Countrywide) for $4 billion, a 70 percent discount from the firm’s book value at the end of 2007. Countrywide
originates, purchases, and securitizes residential and commercial loans; provides loan closing services, such as appraisals and flood
determinations; and performs other residential real estate–related services. This marked another major (but risky) acquisition by
Bank of America’s chief executive Kenneth Lewis in recent years. BofA’s long-term intent has been to become the nation’s largest
The acquisition provided an opportunity to buy a market leader at a distressed price. The risks related to the amount of potential
loan losses, the length of the U.S. housing slump, and potential lingering liabilities associated with Countrywide’s questionable
business practices. The purchase made BofA the nation’s largest mortgage lender and servicer, consistent with the firm’s business
strategy, which is to help consumers meet all their financial needs. BofA has been one of the relatively few major banks to be
Discussion Questions:
1. How did the acquisition of Countrywide fit BofA’s business strategy? Be specific. What were the key assumptions
implicit the BofA’s business strategy? How did the existence of BofA’s mission and business strategy help the firm
move quickly in acquiring Countrywide?
Answer: BofA mission is to become the nation’s largest consumer bank. Its strategy is to provide a full range of financial
services (e.g., credit/savings accounts, credit cards, home-equity loans, mortgages, etc.) to its customers. A mortgage
tends to be among the largest financial commitments most households will make. Once this relationship is established,
BofA hopes to sell the household additional financial services. The acquisition of Countrywide would enable BofA to
realize its mission and strategy by adding thousands of new customers.
2. How would you classify the BofA business strategy (cost leadership, differentiation, focus or some combination)?
Explain your answer.
Answer: BofA followed a hybrid focus strategy (i.e., a combination of differentiation and focus). The bank endeavored to
3. Describe what the likely objectives of the BofA acquisition plan might have been. Be specific. What are the key
assumptions implicit in BofA’s acquisition plan? What are some of the key risks associated with integrating the
Countrywide? In addition to the purchase price, how would you determine BofA’s potential resource commitment in
making this acquisition?
Answer: The acquisition plan objectives could have been to secure access to Countrywide’s branch and ATM network
and brand name at a fraction of book value and to limit any further erosion in the value of its prior $2 billion investment
in Countrywide convertible preferred shares. The immediate need was to assess the likelihood of continuing loan losses
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4. What capabilities did the acquisition of FleetBoston Financial and MBNA provide BofA? How did the Countrywide
acquisition complement previous acquisitions?
Answer: The acquisition of FleetBoston Financial augmented the BofA’s infrastructure by providing an extensive branch
5. What options to outright acquisition did BofA have? Why do you believe BofA chose to acquire Countrywide rather than
to pursue an alternative strategy?
Answer: With bankruptcy a real possibility, BofA could have simply waited until Countrywide sought protection of the
bankruptcy court and then sought to acquire the firm while in bankruptcy, with the acquisition conditioned on the Court’s
Nokia’s Gamble to Dominate the Smartphone Market Falters
The ultimate success or failure of any M&A transaction to satisfy expectations often is heavily dependent on the answer to a
simple question. Was the justification for buying the target firm based on a sound business strategy? No matter how bold,
innovative, or precedent-setting a bad strategy is, it is still a bad strategy.
In a bold move that is reminiscent of the rollout of Linux, Nokia, a Finnish phone handset manufacturer, announced in mid-
2008 that it had reached an agreement to acquire Symbian, its supplier of smartphone operating system software.15 Nokia also
announced its intention to give away Symbian’s software for free in response to Google’s decision in December 2008 to offer its
Android operating system at no cost to handset makers.
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whether Symbian can do a better job of recruiting other handset makers, service providers, and consumers than Nokia’s
competitors.
The strategy to date seems to be unraveling. At the time of the acquisition, Symbian supplied almost 60 percent of the operating
system software for smartphones worldwide. Market researcher Ovum estimates that the firm’s global market share fell to less
Dell Computer’s Drive to Eliminate the Middleman
Historically, personal computers were sold either through a direct sales force to businesses (e.g., IBM), through company-owned
stores (e.g., Gateway), or through independent retail outlets and distributors to both businesses and consumers (e.g., CompUSA).
Retail chains and distributors constituted a large percentage of the customer base of other PC manufacturers such as Compaq and
Gateway. Consequently, most PC manufacturers were saddled with the large overhead expense associated with a direct sales force,
a chain of company-owned stores, a demanding and complex distribution chain contributing a substantial percentage of revenue, or
some combination of all three.
The Dell business model has evolved into one focused relentlessly on improving efficiency. The Dell model includes setting up
super-efficient factories, keeping parts in inventory for only a few days before they are used, and selling computers based on
common industry standards like Intel chips and Microsoft operating systems. By its nature, the Dell model requires aggressive
expansion. As growth in the PC market slowed in the late 1990s, the personal computer became a commodity. Since computers
had become so powerful, there was little need for consumers to upgrade to more powerful machines. To offset growth in its
primary market, Dell undertook a furious strategy to extend the Dell brand name into related electronics markets. The firm started
to sell “low end” servers to companies, networking gear, PDAs, portable digital music players, an online music store, flat-panel
televisions, and printers. In late 2002, the firm began to sell computers through the retail middleman Costco.
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Discussion Questions:
1. Who are Dell’s primary customers? Current and potential competitors? Suppliers? How would you assess Dell’s
bargaining power with respect to its customers and suppliers? What are Dell’s strengths/weaknesses versus it current
competitors?
Answer: Dell’s primary customers are businesses and consumers. Current competitors include HP, Sony, Fujitsu, and
IBM. Potential competitors include retailers such as retailers such as Best Buy, CompUSA, and Walmart. Suppliers
include component suppliers, printer manufacturer Lexmark, plasma TV manufacturers, and EMC in high end storage
machines.
2. In your opinion, what market need(s) was Dell able to satisfy better than his competition?
3. How would you characterize Dell’s original business strategy (i.e., cost leadership, differentiation, niche, or some
combination? Give examples to illustrate your conclusions. How has Dell’s strategy evolved over time? Give examples
to illustrate your answer.
Answer: Dell’s original strategy was to focus on a hybrid strategy of differentiation and cost leadership. Dell originally
differentiated itself through online ordering and achieved cost leadership through minimizing working capital
4. How would you describe Dell’s current implementation strategy (i.e., solo venture, shared growth/shared control,
merger/acquisition, or some combination)? On what core competencies is Michael Dell relying to make this strategy
work?
Answer: Dell’s current strategy is to primarily “go it alone.” However, whenever it doesn’t have a cost advantage in
Consolidation in the Global Pharmaceutical Industry:
The Glaxo Wellcome and SmithKline Beecham Example
By the mid-1980s, demands from both business and government were forcing pharmaceutical companies to change the way they
to squeeze drug company profit margins. The number of contact points between the sales force and the customer shrank
dramatically as more drugs were being purchased through managed care organizations and pharmacy benefit managers. Drugs
commonly were sold in large volumes and often at heavily discounted levels.
Continued consolidation seemed likely, enabling further cuts in sales and marketing expenses. Formulary-driven purchasing
and declining overall drug margins spurred pharmaceutical companies to take action to increase the return on their R&D
investments. Because development costs are not significantly lower for generic drugs, it became increasingly difficult to generate
positive financial returns from marginal products. Duplicate overhead offered another opportunity for cost savings through
consolidation, because combining companies could eliminate redundant personnel in such support areas as quality assurance,
manufacturing management, information services, legal services, accounting, and human resources.
Discussion Questions:
1. What was driving change in the pharmaceutical industry in the late 1990s?
Profit margin pressures continued to mount on drug companies due to the proliferation of managed care, reductions in the
2. In your judgment, what are the likely strategic business plan objectives of the major pharmaceutical companies and why
are they important?
Major strategic objectives are likely to include the following: (1) gaining access to current patents for drugs which are
3. What are the alternatives to merger available to the major pharmaceutical companies? What are the advantages and
disadvantages of each alternative?
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Drug companies could enter joint ventures or partnerships or make minority investments in research oriented
biotechnology companies. While such options are generally less costly, the degree of control is also substantially less.
4. How would you classify the typical drug company’s strategy in the 1970s and 1980s: cost leadership, differentiation,
focus, or hybrid? Explain your answer. How have their strategies changed in recent years?
Historically, drug companies tended to pursue differentiation strategies that were heavily dependent on the ability of their
sales forces to convince physicians, hospitals, and pharmacies to buy their drugs. While “me–too” drugs were heavily
5. What do you think was the major motivating factor behind the Glaxo SmithKline merger and why was it so important?
The primary factor seems to be the desire to achieve sufficient scale to support the necessary R&D to commercialize new
Maturing Businesses Strive to “Remake” Themselves—
UPS, Boise Cascade, and Microsoft
UPS, Boise Cascade, and Microsoft are examples of firms that are seeking to redefine their business models due to a maturing of
their core businesses. With its U.S. delivery business maturing, UPS has been feverishly trying to transform itself into a logistics
expert. By the end of 2003, logistics services supplied to its customers accounted for $2.1 billion in revenue, about 6% of the
Discussion Questions:
1. In your opinion, what are the primary challenges for each of these firms with respect to their employees, customers,
suppliers, and shareholders? Be specific.
Answer: With respect to employees, the firms needed to change their cultures such the employees could change the way
2. Comment on the likely success of each of this intended transformation?
Answer: UPS could have the easiest time making the transformation since they already have the IT systems and customer
service orientation to provide logistical services that they provide for their own operations. OfficeMax will be challenged
Pepsi Buys Quaker Oats in a Highly Publicized Food Fight
On June 26, 2000, Phillip Morris, which owned Kraft Foods, announced its planned $15.9 billion purchase of Nabisco, ranked
seventh in the United States in terms of sales at that time. By combining Nabisco with its Kraft operations, ranked number one in
the United States, Phillip Morris created an industry behemoth. Not to be outdone, Unilever, the jointly owned British–Dutch
giant, which ranked fourth in sales, purchased Bestfoods in a $20.3 billion deal. Midsized companies such as Campbell’s could no
longer compete with the likes of Nestle, which ranked number three; Proctor & Gamble, which ranked number two; or Phillip
Morris. Consequently, these midsized firms started looking for partners. Other companies were cutting back. The U.K.’s Diageo,
As one of the smaller firms in the industry, Quaker Oats faced a serious problem: it was too small to acquire other firms in the
industry. As a result, they were unable to realize the cost reductions through economies of scale in production and purchasing that
their competitors enjoyed. Moreover, they did not have the wherewithal to introduce rapidly new products and to compete for
supermarket shelf space. Consequently, their revenue and profit growth prospects appeared to be limited.
After a review of its options, Quaker’s board decided that the sale of the company would be the best way to maximize
shareholder value. This alternative presented a serious challenge for management. Most of Quaker’s value was in its Gatorade
product line. It quickly found that most firms wanted to buy only this product line and leave the food and cereal businesses behind.
Quaker’s management reasoned that it would be in the best interests of its shareholders if it sold the total company rather than to
By November 21, 2000, Coca-Cola and PepsiCo were battling to acquire Quaker. Their interest stemmed from the slowing
sales of carbonated beverages. They could not help noticing the explosive growth in sports drinks. Not only would either benefit
from the addition of this rapidly growing product, but they also could prevent the other from improving its position in the sports
drink market. Both Coke and PepsiCo could boost Gatorade sales by putting the sports drink in vending machines across the
country and selling it through their worldwide distribution network.
After failing to strike deals with the world’s two largest soft drink makers, Quaker turned to Danone, the manufacturer of Evian
water and Dannon yogurt. Much smaller than Coca-Cola or PepsiCo, Danone was hoping to hype growth in its healthy nutrition
and beverage business. Gatorade would complement Danone’s bottled–water brands. Moreover, Quaker’s cereals would fit into
Danone’s increasing focus on breakfast cereals. However, few investors believed that the diminutive firm could finance a purchase
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Discussion Questions:
1. What factors drove consolidation within the food manufacturing industry? Name other industries that are currently
undergoing consolidation?
Answer: The supermarket industry is a mature market subject to intense price competition. This has resulted in extensive
2. Why did food industry consolidation prompt Quaker to announce that it was for sale?
Answer: Quaker Oats was too small to afford to purchase larger competitors; as a result, it was unable to realize cost
savings through economies of scale in production and purchasing associated with consolidation. Furthermore, they were
3. Why do you think Quaker wanted to sell its consolidated operations rather than to divide the company into the food/cereal
and Gatorade businesses?
Answer: Since most of Quaker’s value was in the Gatorade business, management believed that it could command the
highest price by putting the entire company up for sale rather than splitting it up into independent operations.
4. Under what circumstances might the Quaker shareholder have benefited more if Quaker had sold itself in pieces (i.e.,
food/cereal and Gatorade) rather than in total?
Answer: It is unclear that Quaker would necessarily receive maximum value by selling the consolidated business and
letting the buyer determine what to do with the food manufacturing businesses. This strategy may have limited the
5. Do you think PepsiCo may have been willing to pay such a high price for Quaker for reasons other than economics? Do
you think these reasons make sense? Explain your answer.
Answer: PepsiCo is noted as a marketing machine. There may in fact be hubris attached to being recognized worldwide
as a market leader in the non-alcoholic beverage market. The firm is very conscious of the role of brand recognition in
eBay Struggles to Reinvigorate Growth
Founded in September 1995, eBay views itself as the world’s online market place for the sale of goods and services to a diverse
community of individuals and small businesses. Currently, eBay has sites in 24 different countries, and it offers a wide variety of
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tools, features, and services enabling members to buy and sell on its sites. The firm’s primary business is Markeplaces consisting
of eBay, Shopping.com, and classified websites. In 2006, this business accounted for 90 percent of eBay’s sales and profits.
Historically, acquisitions made by eBay have always been related to e-commerce. For example, concern about slowing growth in
its core U.S. market caused eBay to acquire online payments provider, PayPal, in 2002. The firm achieved significant synergy
between eBay and PayPal by facilitating payments between buyers and sellers.
Discussion Questions:
1. Do you believe this acquisition if related or unrelated to eBay’s business? What are the implications of your answer..
Answer: While both businesses deal with software, Skype is more a pure software-based communications business,
largely unrelated to eBay’s core skills which are based in ecommerce and marketing and managing online auctions. As an
2. What are some of the key assumptions implicit in eBay’s decision to make this acquisition?
Answer: Key assumptions include that Skype can be integrated into eBay in a smooth and timely manner. The different
cultures and technical skills may prove daunting. In addition, eBay is assuming that its online sellers will find the ability