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Bombardier Adtranz Acquisition

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Bombardier Acquisition and Integration of Adtranz
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    Bombardier-Adtranz Integration Plan  SMGT 6050: Mergers, Acquisitions & Strategic Alliances   Ebube Anizor (209347741) 11/22/2010   1Overview OVERVIEW Bombardier had evolved from its humble beginnings as a snowmobile manufacturer based in Joseph-Armanan Bombardier’s garage to a global business in which its once core recreational products wereovershadowed, on a revenue basis at least, by its offerings in transportation, aerospace, and capital.In every segment in which the company operated it was either number 1 or 2 globally. This was notthe case for the Transportation group (BT) in Europe, where in 2001 it sat in fourth place behindAlstom, Siemens and Adtranz (AT). However, the AT acquisition presented the opportunity to vault BTto the forefront of the industry. At a price tag of US$715 million (23% of AT’s 2000 revenue) AT was abargain and an opportunity worth considering for several reasons: ã   Revenue Growth : Unlike all other Bombardier businesses, BT’s revenue was counter-cyclical sogrowth in the sector would provide better balance to its overall revenue (Figure C1 in Appendix C).With the addition of AT, BT’s annual rail-related revenue could grow to US$7.6 billion in 2001 (upfrom US$2.2 billion in 2000) with a backlog of US$14.5 billion. 1 While BT was a low marginbusiness it was a cash generator that helped to finance other Bombardier businesses. ã   Geographic Expansion : AT had a presence in a broader range of European markets and theregion was viewed as the centre of technological development. Asia and South America utilizedEuropean engineering and practices so AT provided BT better access to future markets. ã   Completion of Product Portfolio : BT lacked propulsion system and train controls competence.This had been mitigated by outsourcing to competitors and suppliers; however it was acompetitive weakness as was exemplified by AT’s exclusion from a key deal in the UK in 2000. ATexcelled in these areas, and provided immediate cost synergies and long term strategic strength.Naturally the acquisition was not without its downside. There were many aspects of the deal thatwarranted consideration: ã   Acquisition Size: While BT had a successfully track record of acquisitions it had never integrateda company of AT’s size. Based on 2000 figures, AT had nearly 40% more employees, just under 50%more in sales, and operated in 60 locales. The differing company structures were also of concern. ã   Financial Performance: AT posted net losses going back 4 years in spite of restructurings. Evenat a bargain purchase price, an unsuccessful integration could threaten BT’s income and cash flow. ã   Due Diligence: AT was understandably reticent to let a competitor gain full access to its “books”should the deal not complete, so BT’s diligence process was not comprehensive. Furthermore BT’sEuropean management had not participated in the deal; only amplifying the potential risks. ã   Customer Loss: The acquisition could trigger the loss of customers or new contracts. Additionally,AT had earned a reputation for poor production and servicing that competitors could exploit.A comprehensive plan would be required to realize the projected synergies, tackle the above notedconcerns, and - should the deal clear - anticipate and address regulator stipulations. 1 “Bombardier Gets Adtranz for a Bargain”.http://findarticles.com/p/articles/mi_m1215/is_9_201/ai_65805853/     2Integration INTEGRATION While management at BT faced several integration issues that included leadership style, workenvironment and regulator stipulations (see Table B1 in Appendix B) the most pressing were definingan organizational structure  that best suited its new global fully integrated operations, executing cost saving  measures that addressed past inefficiencies and new opportunities, and developing acombined culture  that fostered growth for the company and success for its employees. ORGANIZATIONAL STRUCTURE AND OPERATIONS Through experience gained by successfully integrating many acquisitions BT had developed expertisein product assembly and counted it (rather than manufacturing) as a core competency. Utilizingexternal suppliers and employing a just-in-time delivery resulted in substantial time and inventorysavings. Accordingly, BT structured its operations primarily by geography, placing plants andmaintenance facilities in strategic countries where customers and suppliers could readily be accessed.Under DaimlerChrysler AT underwent ongoing restructuring to wring out costs. The resultantstructure was a company organized by product segment and function oriented towardsstandardization and modularization to save costs while still meeting the custom needs of globalcustomers (see Figure A1 and Table A2 in Appendix A). The structures raised compatibility issues.The relative financial performance of the firms would naturally lead to the conclusion that BT’sstructure should be adhered to in the combined entity; however BT was now bringing newmanufacturing expertise, product scope and market presence under its banner and this requiredsome consideration in forming the best combined  structure . Complements and Overlaps The core businesses of BT and AT were to some extent complementary. BT predominantly focused onproducing the mechanical elements of railway vehicles and excelled in the subway, trams and lightrail car segments. AT on the other hand possessed expertise in propulsion and signalling systems andexcelled in the inter-city and growing high-speed car segments (see Figure 1). Therefore, in manymarkets there was no significant overlap in activities; in fact AT supplied propulsion technology to BT. Services Propulsion andControlsTotal TransitSystemsRail ControlSystemsRolling Stocks FixedInstallationsBT Strength Weakness NeutralN/A ATCombined Figure 1: Individual and Combined Operational Competencies There existed some overlap in activities that contributed to the value of the acquisition. BT and AToffered their own branded products in the regional trains, trams and light rail segments, Also, ATmanufactured the mechanical parts of rolling stock. 2 Since Fixed Installations were not consider astrategic business by BT and should be either excluded from the acquisition or sold post closing. 2 “Bombardier/Adtranz Merger Procedure”, http://ec.europa.eu/competition/mergers/cases/decisions/m2139_en.pdf     Combined Entity Homogeneous products were simplspecific customer demands whichsociety was also decidedly countryaffected travel behaviour and thustrategies were required, an organizappropriate for the combined entity ã   Assembly and Service: Train asJIT operations. AT’s facilities in S ã   Specialty Services: capital inteplants in strategic regions to optiBT had a successful track record of inone were of the scale of Adtranzconstant flux, and as earlier noted n Figure With the anticipated favourforward and the fact that the majoritits headquarters in Europe (likely Gwell for growth in emerging markets Management   Given the proposed structure, inmanagement should remain. In tmanagement should lead (pendinpractices). Whereas AT managemethey would have a similar responsibi 3 “Bombardier Sets…”http://www.allbusines   Manuf./Asbly/ServiNorth AmericaCont. EuropeS   China Iy not a reality of the Rail industry; cars havaried by country. Furthermore, the rolspecific. Public policy, fuel prices, and envdemand for trains. Because country/reational design that reflected BT’s current s(see Figure 2). The highlights of the structembly would still continue in the noted reuth America and Asia will be integrated.nsive and generic activities will be concemize the use of resources. These sites willntegrating acquisitions into its structure ansee Table C1 in Appendix C). By contrastt proven from a profit perspective. : Integrated Organizational Structure of BT ble trajectory of public transportation py of BT’s revenue (52%) was generated onermany) is also recommended. This footiwhere EU standards were embraced.the lines of business where BT experthe cases where AT held the expertise (the appropriate training in BT managet was responsible for a product or functiolity but with more narrow geographical ow s.com/company-activities-management/company-l   BombardierTransportationsemceAtlanticEuropeMexico andouth AmericaOther AsiaSpecialtyNorth America/ EuropeTotal TransitSystemsPropulsionBogiesCars  3Integrationd to be built to meetof transportation inronmental sentimentsgion specific producttructure was the mostre are as follows:gions, employing BT’sntrated in specializedupport BT globally. 3  d processes; althoughAT’s structure was inlicy in Europe goinghe continent, locatingg also positioned BTise was stronger, BTe.g. propulsion) theirment philosophy andn across geographies,ership. cations/6187771-1.html 
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