“Strategy is Choice” - Takeovers are Just One Option

In my previous life in mergers and acquisitions, I was fortunate to work alongside Dr John Wells (before he moved back to Harvard Business School) as we negotiated takeovers, investments, strategic partnerships and the like for a quoted travel company.

It was a chaotic period (right in the middle of the dot-com boom) and we probably had more misses than hits. However I always remember that period for a three-word phrase that became our mantra as we evaluated the best options for the Board.

The phrase was simply “strategy is choice”. Simple, and extremely powerful for students who need to write about external growth strategy.

Strategy is choice. What does it mean in the context of takeovers and mergers?

The key point for students to remember is that firms have a several options when it comes to determining growth strategy.

The first choice is the mix between organic (or internal growth) and external growth. These are not mutually exclusive. For example, as we’ve discussed in the BUSS4 revision workshops, Adidas has adopted a strategy of both organic growth (new product and market development) as well as undertaking a transformational takeover of Reebok in 2005 (external growth through acquisition).

Secondly, if external growth is chosen as an option, then this doesn’t have to be via takeover or merger.

For example, we blogged recently about how Starbucks has decided to use a strategic alliance with Tata Beverages (part of the Tata Group which bought Corus and Jaguar Land Rover) rather than set up a Starbucks chain organically or takeover an existing coffee shop operator in India.

Compare this with Starbucks strategy to enter the UK market. I was involved in that strategy - selling an existing chain of 64 coffee shops called Seattle Coffee Company to Starbucks in May 1998. Starbucks wanted to establish market leadership as quickly as possible and the overnight re-branding of SCC to Starbucks (largely in London) achieved this instantly.

So a firm has choices. I would guess that over 99% of takeovers and mergers are optional. Very few takeovers are forced onto the participants (except perhaps in situations of financial distress for the seller).

So if takeovers are optional, then the smart student should make the point that there are other, perhaps better alternatives. All the evidence suggests that more takeovers fail than succeed. So those alternative options might provide the prospect of a better return for shareholders; perhaps at lower risk.