Chapter 7: Merger and Acquisition Strategies 215In contrast to Campbell Soup, Samsung Group, a huge conglomerate, uses an unre-
lated diversification strategy to further diversify its operations. Headquartered in Suwon,
South Korean, Samsung’s portfolio recently included almost 70 companies competing in
unrelated areas such as electronics, construction, life insurance, and fashion. It is South
Korea’s largest chaebol, or business conglomerate. Samsung Electronics, one of the firm’s
three core units, features three businesses that are well known to consumers throughout
the world—mobile devices such as smartphones, consumer electronics (televisions and
home appliances), and electronics components such as semiconductors and display pan-
els. With roughly $56 billion in cash in mid-2015, Samsung intended to use some of this
cash to complete what one observer called a “string of seemingly unrelated M&A deals.”
A printing-solutions company, a mobile payments start-up firm, and a battery-making
affiliate are three recent acquisitions that appear to have the potential to increase the
firm’s level of diversification as it enters new competitive arenas.^41
Firms using acquisition strategies should be aware that, in general, the more
related the acquired firm is to the acquiring firm, the greater is the probability that the
acquisition will be successful.^42 Thus, horizontal acquisitions and related acquisitions
tend to contribute more to the firm’s strategic competitiveness than do acquisitions of
companies operating in product markets that differ from those in which the acquiring
firm competes. Nonetheless, the unrelated diversification strategy, such as the one
Samsung is implementing, can also lead to success when used in ways that enhance
firm value.7-2f Reshaping the Firm’s Competitive Scope
As discussed in Chapter 2, the intensity of competitive rivalry is an industry characteristic
that affects a firm’s profitability.^43 To reduce the negative effect of an intense rivalry on
financial performance, firms may use acquisitions to lessen their product and/or mar-
ket dependencies. Reducing a company’s dependence on specific products or markets
shapes the firm’s competitive scope. For example, Campbell Soup’s intention to increase
its position in organic foods in its new Packaged Fresh unit reduces its dependence on
traditional and nongrowth areas such as soups. If Campbell continues to emphasize its
Packaged Fresh units, perhaps through internal growth as well as acquisitions, the firm’s
competitive scope will change.7-2g Learning and Developing New Capabilities
Firms sometimes complete acquisitions to gain access to capabilities they lack. Research
shows that firms can broaden their knowledge base and reduce inertia through acquisi-
tions^44 and that they increase the potential of their capabilities when they acquire diverse
talent through cross-border acquisitions.^45 Of course, firms are better able to learn these
acquired capabilities if they share some similar properties with the firm’s current capabil-
ities. Thus, firms should seek to acquire companies with different but related and comple-
mentary capabilities as a path to building their own knowledge base.
CenturyLink is a U.S.-based, multinational, communications corporation. The firm
provides communications and data services to businesses, governmental agencies, and
residential homes. With a focus on developing its capabilities to serve customers’ needs
for large-scale big data analytics, CenturyLink recently acquired Orchestrate, a firm that
“offers a fully managed database service for rapid application development.” The acqui-
sition strengthened CenturyLink’s cloud platform capabilities, primarily by integrating
Orchestrate’s experienced data services team with CenturyLink’s own product devel-
opment and technology organization.^46 By integrating their capabilities, the firms hope
that they are enhancing their learning capabilities as a path to better serving customers
dealing with big data analytics.