Example of Synergy: (Case study 2) The Walt Disney Company, one of the biggest name synergies known to the

e world, has been described as a drug that hits you from every angle with presence in almost every store. Disney's road to becoming a successful synergy doesn't stop with just the obvious entertainment products and services, but targets audiences from other directions, creating the drug-like effect. Perhaps the most amazing part of their synergy is their connections with other huge companies that allow them to profit from advertisement, merchandise, and other inside deals. Disney has given exclusive selling rights to such companies as Coca-Cola, Minute Maid, Kraft, Dole, and McDonalds in their parks, meaning that no where on Disney property will you find Pepsi or a Burger King. This allows the companies to gain profit, but also Disney often offers deals and Happy Meal toys through these companies, gaining advertisement, promotion, and yet another way to surround the public.

 Companies like AT&T, Lego, GM, KODAK, Motorola, IBM, and Xerox have all sponsored different attractions at the Disney parks, giving them an opportunity to advertise and show their products while allowing Disney a way to pay for the production and upkeep of some of the biggest rides there. How much of the entertainment business Disney has a hand in? If you can think of a form of entertainment, Disney has a company that goes along with it. They own 8 magazine and book publishing groups, 17 magazines including ESPN Magazine and US Weekly, one television network, 15 cable television stations, 13 international broadcast stations, 29 radio stations, 7 international ventures, 4 television production and distribution companies, 8 movie production and distribution companies, a crude petroleum and natural gas company, over 660 world-wide Disney Stores, the Walt Disney Internet Group which provides websites, a video gaming company, 5 music companies such as Hollywood Records and Mammoth Records, 3 Broadway productions, 3 professional sports franchises including The Mighty Ducks of Anaheim, the Anaheim Angels, and Anaheim Sports Inc, a company called TiVo, over 30 hotels, 4 resorts, and Walt Disney World alone features 4 parks, 22 hotels, 3 water parks, a huge shopping marketplace, a club district, 3 golf courses, a sports complex, over 60 table restaurants, and 90 plus fast food services.

 Looking at all of these figures, its is apparent that Disney is a full-fledged synergy system with ways to target the public from every direction. The general public most likely has no idea how much Disney owns, and how much they dominate the world. Becoming involved with Disney as a consumer is almost impossible to avoid, since they are able to target the public from every direction, especially with company affiliates, some of which even the most astute Disney fan wouldn't know.

 Case study 3: Adidas Reebok Merger Case Study The sporting goods industry has seen many mergers and acquisitions (M&A) driven by rising competition and industrial growth. In 1997, Adidas acquired the Salomon Group for $1.4 billion. In 2003, Nike acquired Converse for $305 million and in 2004 Reebok acquired The Hockey Company for $330 million. Adidas and Reebok Two mega brands, with great strengths In August 2005, German adidas-Salomon announced plans to acquire Reebok at an estimated value of 3.1 billion ($3.78 billion). At the time, Adidas had a market capitalization of about $8.4 billion, and reported net income of $423 million a year earlier on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4 billion. While analysts opined that the merger made sense, the purpose of the merger was very clear. Both companies competed for No. 2 and No. 3 positions following Nike.

 Competition with Nike and Puma Nike was the leader in U.S. and had made giant strides in Europe even surpassing Adidas in the soccer shoe segment. According to 2004 figures by the Sporting Goods Manufacturers Association International, Nike had about 36%, Adidas 8.9% and Reebok 12.2% market share in the athletic-footwear market in the U.S. Adidas was the No. 2 sporting goods manufacturer globally, but it struggled in the U.S. the worlds biggest athletic-shoe market with half the $33 billion spent globally each year on athletic shoes. Adidas was perceived to have good quality products that offered comfort whereas Reebok was seen as a stylish or hip brand. Nike had both and was a favorite brand because of its fashion status, colors, and combinations. Adidas focused on sport and Reebok on lifestyle. Clearly the chances of competing against Nike were far better together than separately. Besides Adidas was facing stiff competition from Puma, the No. 4 sporting-goods brand. Puma had then recently disclosed expansion plans through acquisitions and entry into new sportswear categories. For a successful merger, the challenge was to integrate Adidass German culture of control, engineering, and production and Reeboks U.S. marketing- driven culture.

Impossible is Nothing
On January 31, 2006, adidas closed its acquisition of Reebok International Ltd. The combination provided the new adidas group with a footprint of around 9.5 billion ($11.8 billion) in the global athletic footwear, apparel and hardware markets. Adidas-Salomon Chairman and CEO Herbert Hainer said, We are delighted with the closing of the Reebok transaction, which marks a new chapter in the history of our group. By combining two of the most respected and well-known brands in the worldwide sporting goods industry, the new Group will benefit from a more competitive worldwide platform, well-defined and complementary brand identities, a wider range of products, and a stronger presence across teams, athletes, events and leagues. Hainer also said, The brands will be kept separate because

each brand has a lot of value and it would be stupid to bring them together. The companies would continue selling products under respective brand names and labels.

Hubris
It means extreme pride or arrogance. Hubris often indicates a loss of contact with reality and an overestimation of one's own competence or capabilities, especially when the person exhibiting it is in a position of power.

Hubris hypothesis of takeovers

An interesting hypothesis regarding takeover motives was proposed by Richard Roll. He considered the role that hubris, or the pride of managers in the acquiring firm, may play in explaining takeovers. The hubris hypothesis implies that managers seek to acquire firms for their own personal motives and that the pure economic gains to the acquiring firm are not the sole motivation or even the primary motivation in the acquisition. In such cases, managers might pay a premium for a firm that the market has already correctly valued and as such the pride of management allows them to believe that their valuation is superior than that of the market.

 Underlying conviction: the market is efficient and can provide the best indicator of the value of a firm.
Eg. Stock prices of the acquiring firms fall after the market becomes aware of the takeover bid. This occurs because the takeover is not in the best interests of the acquiring firms stockholders and does not represent an efficient allocation of their wealth. On the other hand, the stock prices of the target firms increase with the bid because the acquiring firm is not only going to pay a premium but also may pay a premium in excess of the value of the target. Thus, the combined effect of the increasing value of the target and the falling value of the acquiring firm can sometimes be negative.

Hubris hypothesis: JUSTIFICATION

There is no gain to be realised from corporate takeovers primarily because financial markets, product markets, and labour markets are assumed to be totally efficient.