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CHAPTER 5 • STRATEGIES IN ACTION 159

Cross-border merger and acquisition (M&A) deals by companies in major nations fell
26 percent in the United States in 2008 versus 2007, as compared to a fall of 15 percent in
France, and a fall of 67 percent in the United Kingdom. 33
Firms with cash such as Marubeni and Itochu in Japan are on the hunt for super deals
outside of Japan. Cross-border M&A deals in Japan grew 231 percent in 2008 and grew
101 percent in China. Japanese companies in total spent $77.8 billion in 2008 on acquisi-
tions outside Japan, more than triple the amount spent in 2007. “Hard times often come
hand in hand with opportunities,” said Teruo Asada, president and chief executive of the
150-year-old Marubeni Corporation in Japan.
According to Strategas Research Partners, 168 of 419 nonfinancial firms in the S&P
500 have at least $1 billion in cash apiece, and 16 have more than $10 billion each. 34
Exxon/Mobil has $32 billion in cash, Cisco Systems has $29.5 billion, and Apple has
$25.6 billion.
The largest business software firm in the world, Oracle Corp. is another cash-rich firm
acquiring other firms, having completed 12 acquisition in the last 12 months. A few of the
firms acquired by Oracle recently are mValent, Tacit Software, Primavera Systems,
Advanced Visual Tech, ClearApp, Skywire Software, AdminServer, and Empirix. Many
companies with high-quality products have turned into desperate sellers amid the worst
recession in a generation. Oracle dominates the market for industrial-strength databases
that companies rely on the organize everything from inventories to payrolls.
White knight is a term that refers to a firm that agrees to acquire another firm when
that other firm is facing a hostile takeover by some company. For example, in 2009, Palo
Alto, California–based CV Thereapeutics Inc., a heart-drug maker, was fighting a hostile
takeover bid by Japan’s Astellas Pharma. Then CVT struck a friendly deal to be acquired
by Forest City, California–based Gilead Sciences at a higher price of $1.4 billion in cash.
Gilead is known for its HIV drugs, so its move into the heart-drug business surprised many
analysts.
Not all mergers are effective and successful. Pricewaterhouse Coopers LLP recently
researched mergers and found that the average acquirer’s stock was 3.7 percent lower than
its industry peer group a year later. BusinessWeek and the Wall Street Journal studied
mergers and concluded that about half produced negative returns to shareholders. Warren
Buffett once said in a speech that “too-high purchase price for the stock of an excellent
company can undo the effects of a subsequent decade of favorable business develop-
ments.” Research suggests that perhaps 20 percent of all mergers and acquisitions are
successful, approximately 60 percent produce disappointing results, and the last 20 percent
are clear failures. 35 So a merger between two firms can yield great benefits, but the price
and reasoning must be right. Some key reasons why many mergers and acquisitions fail are
provided in Table 5-8.
Among mergers, acquisitions, and takeovers in recent years, same-industry com-
binations have predominated. A general market consolidation is occurring in many
industries, especially banking, insurance, defense, and health care, but also in pharmaceu-
ticals, food, airlines, accounting, publishing, computers, retailing, financial services, and
biotechnology. For example, SXR Uranium One Inc. purchased rival uranium miner
UrAsia Energy Ltd., creating the world’s second-largest uranium company after Cameco

TABLE 5-8 Key Reasons Why Many Mergers
and Acquisitions Fail
• Integration difficulties
• Inadequate evaluation of target
• Large or extraordinary debt
• Inability to achieve synergy
• Too much diversification
• Managers overly focused on acquisitions
• Too large an acquisition
• Difficult to integrate different organizational cultures
• Reduced employee morale due to layoffs and relocations