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to help it stay on the right path towards its objectives. The plan must be modified when this monitoring suggests that it is no longer leading to the desired objective.

However, MBO is just another tool. It is not the great cure for management inefficiency … Management by objectives works if you know the objectives: 90% of the time you don’t.

Chinese retailer halts rapid expansion strategy

Gome Electrical Appliances Group, China’s leading electronics and home appliance retailer, is calling a halt to the rapid expansion of its branch network in favour of finding ways to generate greater sales and profits from existing stores.

The sharp shift in strategy at Gome, which runs most of its network under Hong Kong-listed unit Gome Electrical Appliances Holding, comes after it added more than 200 stores last year to a network that includes more than 850 stores covering almost all Chinese provinces.

The expansion included the $630m takeover last July of China’s Paradise Electronics, the country’s number three electronics retailer.

“In the past our greatest opportunity for growth was in opening new stores. Now the greatest growth area is in increasing same-store sales,” Huang Guangyu, Gome chairman, said in an interview. He announced plans to set up a $500m fund to invest in China’s retail sector in cooperation with Bear Stearns, the US bank.

Gome’s listed unit has yet to release 2006 results. Net profits rose 46 per cent in the first three quarters to $72.38m as sales grew 42 per cent.

Financial Times March 2007

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Hello, girls

Recession-hit companies target female customers

Never mind the fight to get people to open their wallets in the recession—some companies are taking a different tack, and trying to get customers to open their purses instead. In America, where female consumers make more than 80% of discretionary purchases, companies have started tailoring their products and messages to appeal to women, in an effort to boost their sales.

Frito-Lay, a snack-food company owned by PepsiCo, has launched a campaign called “Only In A Woman’s World” to convince women that crisps and popcorn are not just for male, beer-guzzling sport fans. OfficeMax, America’s second-largest office-supplies company, has redesigned its notebooks and file-holders to appeal to women and has run advertisements that encourage women to make their cubicles more colourful. For the first time, McDonald’s was a sponsor of New York Fashion Week in February, promoting a new line of hot drinks to trendsetting women.

Eric Almquist, head of global consumer insights for Bain & Company, a consultancy, says he is surprised it has taken a recession to get companies to focus on women. After all, it is hardly news that they control the vast majority of consumer spending. (They buy 90% of food, 55% of consumer electronics, and most of the new cars.) But the recession has prompted companies to rethink their approach. SheSpeaks, a marketing consultancy that helps companies including Citibank and Philips reach women consumers, has tripled its number of clients since the recession began. Some women’s magazines, too, are benefiting as companies that had never before expressed interest in advertising with them are now doing so.

Aside from their greater purchasing clout, women are valuable customers for three reasons. First, they are loyal, says Marti Barletta, author of “Marketing to Women”, and more likely to continue to buy a brand if they like it. Second, women are more likely than men to spread information about products they like through word of mouth and socialnetworking sites. Third, most of the lay-offs so far in America have been in male-dominated fields, like manufacturing and construction. This

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means women may bring home a greater share of household income in the months ahead and have even more buying power.

But marketing to women may not work for every company. In particular, for firms (such as some carmakers) with brands that are regarded as strongly male, “gender bending”, or trying to attract the opposite sex, could enhance short-term sales but cause a longer-term decline. Jill Avery of the Simmons School of Management in Boston researched this trend with cars. When Porsche released a sport-utility vehicle designed for women, sales temporarily increased, but men started to move away from the brand, on the basis that it had compromised its masculine image. But in this recession, having a tarnished brand is better than having no brand at all.

IBM Is Dead. Long Live IBM!

This ain't your father's gray-suited, straightlaced International Business Machines. It's not all about presenting a professional front and collecting payment on mainframe megacontracts. Today, Big Blue is all about building relationships with its customers - large or small. And that makes a big difference on the bottom line.

IBM reported fourth-quarter earnings this week, with total sales dropping 6% year over year to $27 billion, but earnings per share expanding by 17% to $3.28. Adjust the results for currency exchange changes, and the revenue stays nearly flat at a 1% swoon. The hardwarehawking IBM of yesteryear would not have held up nearly that well. Importantly, it's the most profitable segments that are doing well.

While systems and technology sales turned a 20% whiter shade of pale amid our global financial crisis, the rest of the company fared much better with a mere 2-3% drop. Luckily, the hardware side of Big Blue's house only accounts for a small part of total business nowadays. Highmargin software sales and highly renewable service contracts accounted for 80% of sales. On top of that, gross margins are expanding in the service and software segments - but shrinking when it comes to hardware.

Company spokesman Doug Shelton says that "This profit improvement is the result of the transformation that IBM has undergone

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over the last 6 years." The Armonks moved out of low-margin businesses like PC systems and hard drives and into "higher value services markets." Nowadays, mainframes and pSeries servers just sing backup behind real stars like online services platform WebSphere and collaborative productivity suite Lotus.

In the pursuit of new markets for these high-value products and services, IBM is aggressively selling to small businesses and local governments around the world. "We also reoriented our research organization to focus more heavily on our services business, having researchers work directly with services clients," says Mr. Shelton. Oracle and SAP AG like to brag about multi-million-dollar deals, but an IBM press release is just as likely to talk about loosening up congested city traffic in Stockholm.

This puts a friendly, personal face on those stodgy old suits and ultimately gives IBM greater visibility of what users worldwide really want. Today, IBM competes more directly with service swami Infosys than with server-happy Dell. And that's a good thing.

Business Week January 2009

Exercise 5

Translate the following into Russian.

Earnings target; salaried workforce; production facilities; to outsource; inventories; production costs; profitability; overhaul plan; start-ups; multinationals; layoff; to take over; chief executive; executive board; to recruit a chairman; average consumption; market research; emerging market; mature market; production capacity; market push; advertising and promotion campaign; to slash prices; bottom line; operating margin; to spin off.

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UNIT VI

MEGERS AND ACQUISISIONS

№ 6.0

A. Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. When they're not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carve-outs or tracking stocks.

The Main Idea

One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A.

This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist

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when the two firms merged, and a new company, DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.

B. There are three sorts of mergers: horizontal integration, when two similar firms tie the knot; vertical integration, in which two firms at different points in the supply chain get together; and diversification, when two companies with nothing in common jump into bed. These can be a voluntary merger of equals, a voluntary takeover of one firm by another; or a hostile takeover—in which the management of one firm tries to buy a majority of shares in another.

Merger activity generally comes in waves, and is most common when shares are overvalued. The late 1990s saw fevered activity. Then the pace slowed in most industries, particularly after September 11th 2001. It picked up again in mid-2003 as companies that weathered the global recession sought bargains among their battered brethren. By the start of 2006 a mergers and acquisitions boom was in full swing, provoking a nationalist backlash in some European countries. The future of the merger wave now depends on how deep the downturn in private equity proves to be.

Wikipedia, the free encyclopedia

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Interbrew Holds Brazilian Talks

Interbrew, the Belgium-based maker of Stella Artois beer, raised expectations of fresh global consolidation in the industry yesterday when it announced that it was in talks with AmBev, Brazil’s biggest brewer.

Interbrew and AmBev were the number four and five brewers in the world. A combination of Interbew and AmBev would create a business to rival global industry leader Anheuser-Busch, at least in terms of volumes produced. AmBev is by far the industry leader in Brazil and has been seen as an important strategic asset in the global consolidation of the industry.

The talks with AmBev are likely to be seen as further evidence that John Brock – who became chief executive of Interbrew in February 2003 – is willing to seek expansion opportunities in emerging markets, despite a pledge that he would put the onus on organic growth and improving its internal organization, and in particular its supply chain and distribution channels.

In the last ten years, Interbrew leapfrogged its rivals by buying brands such as Labatt in Canada and parts of Bass in the UK. But after taking over Mr. Brock made it clear he was not looking to following the expansionary approach of his predecessor, Hugo Powell.

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Interbrew shares fell 3 per cent on concerns that the two companies might be talking about a merger of equals.

In Russia, a metals giant could soon rise from deal

A deal to create a Russian metals giant capable of challenging Alcoa Inc. as the world’s biggest aluminum producer is likely to be signed as early as today, people familiar with the talks said. Under the deal, Russia’s Rusal Ltd. will take over smaller domestic rival Sual Group and the alumina assets of Swiss commodities trader Glencore International AG to create a new company with an estimated market value of $30 billion.

The combination is a formidable force, producing four million metric tons of aluminum a year – more than the 3.6 million that Pittsburgh-based Alcoa produced last year. Analysts say it could trigger further consolidation in the global aluminum industry, which is much more fragmented than the steel, copper or nickel industries.

The deal gives Rusal the missing pieces it needed to become a world leader. Thanks to the great rivers of Siberia, it already has an edge over rival Alcoa: access to cheap electricity – crucial in such a powerintensive industry. But it has a shortage of bauxite, the ore that is refined to make alumina, the starting material for smelting aluminum. Sual plentiful supply of bauxite and Glencore’s alumina will aid Rusal’s drive for self-sufficiency.

Rusal’s rise increases the competitive pressures on Alcoa and Montreal-based Alcan Inc., the world’s No.2 producer. High energy costs have forced them to idle some smelters in North America and Europe and build new facilities in places like Iceland and Trinidad where power is abundant and cheap.

Rusal’s ambitions could become even grander after swallowing up Sual. One condition of the deal is that the new company will list its shares in London within three years – a move that could raise enough capital for a new round of acquisitions. Rusal has already said it wants to diversify into metals like copper or nickel.

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Under the terms of the deal, Rusal would issue new shares to acquire Sual’s and Glencore’s assets, and would own 64.5% of the new company, with Sual controlling 21.5% and Glencore 14%.

Merger volume on pace for strong year

The business of mergers and acquisitions took a slight breather in the latest quarter but appears poised to regain its record-setting momentum as 2006 draws to a close.

The summer historically is slow for lawyers, bankers and executives who put together big deals. This year, July, August and September produced about $748 billion of transactions world-wide, according to data collected by Thomson Financial.

By most any historical measure, that is an astounding figure, up 16% from $646 billion a year ago, but it is light for this deal-heavy year. In each of the year’s first two quarters, about $900 billion deals were announced.

Deal makers say there is little to suggest that the corporate mergers-and-acquisition market has begun to retreat. They point to many conditions that should pave the way for a fresh torrent of announcements by year end. With stock market indexes rising, and the Dow Jones Industrial Average nearing a record, corporate acquirers are likely to have the confidence to dive into more transactions, amid a market that is craving private-equity deals.

Through the first nine months, there have been $2.5 trillion of deals announced, according to Thomson, near the total for all of 2005, which was close to $2.8 trillion. That puts this year on track for breaking the $3 trillion barrier by December, a number more than 50% greater than 2004, and seven times the volume of the very slow 2003.

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“We may not have hit the high point yet,” said James R. Elliott III, co-head of global mergers and acquisitions at J.P, Morgan Chase & Co. in New York, who noted historically low interest rates, the ease with which the companies can tap the capital markets to raise money to finance deals and increasing corporate earnings as factors driving the market.

Each of those has been in place since early 2004, steadily increasing merger activity so that it rivals the boom of the late 1990s. This latest nearly three-year span has produced transactions across nearly every sector, a trend that continued into this year’s third quarter.

The buying spree isn’t limited by geography, with Europe producing deal volume that exceeded the U.S. For the quarter, announced deals for European targets totaled $263 billion, compared with $252 billion of deals for U.S. targets, according to the Thomson data. That represents a significant realignment for the overall market, which historically has been dominated by the U.S.

That trend could continue in the next decade, as European governments accept some cross-border mergers that would have been politically untenable in the past. Meanwhile, another distinct set of deals is being hatched to counterbalance that trend: The formation of large, national champions to compete in this Continentwide consolidation.

India’s acquisition spree

Indian companies are in an expansive, acquisitive mood. For proof, one need look no further than the confirmation from Tata Steel, India’s largest private-sector steelmaker, that is mulling a bid for Corus, a much larger Anglo-Dutch rival. If the deal came off, it would be worth several billion dollars, by far the largest foreign purchase ever made by an Indian firm. In the first three quarters of this year Indian companies announced 115 foreign acquisitions, with a total value of $7.4 billion, a huge increase on previous years, and almost as much as foreign firms have invested in Indian purchases.

The shopping spree spans industries from information technology and outsourcing to liquor. Wipro, for example, one of the country’s big three IT firms, has this year acquired technology companies in Portugal,

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