Case Study Description of Freeport-McMoRan: Financing an Acquisition
Freeport-McMoRan's acquisition of Phelps Dodge created the world's largest publicly traded copper company. JPMorgan and Merrill Lynch advised the acquirer and arranged $17.5 billion in debt financing and $1.5 billion in credit facilities. In addition, these two firms underwrote $5 billion in equity capital through simultaneous offerings of Freeport-McMoRan common shares and mandatory convertible preferred shares. These financings created an optimal capital structure for the company that resulted in stronger credit ratings. The activities of the equity capital markets and sales groups at the underwriting firms are explored and the structure and benefits of mandatory convertible preferred shares is explained.
Swot Analysis of "Freeport-McMoRan: Financing an Acquisition" written by David P. Stowell, Peter Rossmann includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Freeport Mcmoran facing as an external strategic factors. Some of the topics covered in Freeport-McMoRan: Financing an Acquisition case study are - Strategic Management Strategies, Financial markets, International business, Mergers & acquisitions and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Freeport-McMoRan: Financing an Acquisition casestudy better are - – increasing household debt because of falling income levels, supply chains are disrupted by pandemic , banking and financial system is disrupted by Bitcoin and other crypto currencies, technology disruption, increasing commodity prices, increasing energy prices, competitive advantages are harder to sustain because of technology dispersion,
talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Freeport-McMoRan: Financing an Acquisition
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Freeport-McMoRan: Financing an Acquisition case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Freeport Mcmoran, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Freeport Mcmoran operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Freeport-McMoRan: Financing an Acquisition can be done for the following purposes –
1. Strategic planning using facts provided in Freeport-McMoRan: Financing an Acquisition case study
2. Improving business portfolio management of Freeport Mcmoran
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Freeport Mcmoran
Strengths Freeport-McMoRan: Financing an Acquisition | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Freeport Mcmoran in Freeport-McMoRan: Financing an Acquisition Harvard Business Review case study are -
Superior customer experience
– The customer experience strategy of Freeport Mcmoran in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Sustainable margins compare to other players in Finance & Accounting industry
– Freeport-McMoRan: Financing an Acquisition firm has clearly differentiated products in the market place. This has enabled Freeport Mcmoran to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Freeport Mcmoran to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that Freeport Mcmoran has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Diverse revenue streams
– Freeport Mcmoran is present in almost all the verticals within the industry. This has provided firm in Freeport-McMoRan: Financing an Acquisition case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Analytics focus
– Freeport Mcmoran is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by David P. Stowell, Peter Rossmann can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– Freeport Mcmoran has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Freeport-McMoRan: Financing an Acquisition HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
High brand equity
– Freeport Mcmoran has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Freeport Mcmoran to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to recruit top talent
– Freeport Mcmoran is one of the leading recruiters in the industry. Managers in the Freeport-McMoRan: Financing an Acquisition are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Strong track record of project management
– Freeport Mcmoran is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Organizational Resilience of Freeport Mcmoran
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Freeport Mcmoran does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Operational resilience
– The operational resilience strategy in the Freeport-McMoRan: Financing an Acquisition Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Effective Research and Development (R&D)
– Freeport Mcmoran has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Freeport-McMoRan: Financing an Acquisition - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Freeport-McMoRan: Financing an Acquisition | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Freeport-McMoRan: Financing an Acquisition are -
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Freeport Mcmoran supply chain. Even after few cautionary changes mentioned in the HBR case study - Freeport-McMoRan: Financing an Acquisition, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Freeport Mcmoran vulnerable to further global disruptions in South East Asia.
High bargaining power of channel partners
– Because of the regulatory requirements, David P. Stowell, Peter Rossmann suggests that, Freeport Mcmoran is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Slow to strategic competitive environment developments
– As Freeport-McMoRan: Financing an Acquisition HBR case study mentions - Freeport Mcmoran takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
No frontier risks strategy
– After analyzing the HBR case study Freeport-McMoRan: Financing an Acquisition, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Products dominated business model
– Even though Freeport Mcmoran has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Freeport-McMoRan: Financing an Acquisition should strive to include more intangible value offerings along with its core products and services.
Need for greater diversity
– Freeport Mcmoran has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Skills based hiring
– The stress on hiring functional specialists at Freeport Mcmoran has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
High cash cycle compare to competitors
Freeport Mcmoran has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Capital Spending Reduction
– Even during the low interest decade, Freeport Mcmoran has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Freeport-McMoRan: Financing an Acquisition, is just above the industry average. Freeport Mcmoran needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Aligning sales with marketing
– It come across in the case study Freeport-McMoRan: Financing an Acquisition that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Freeport-McMoRan: Financing an Acquisition can leverage the sales team experience to cultivate customer relationships as Freeport Mcmoran is planning to shift buying processes online.
Opportunities Freeport-McMoRan: Financing an Acquisition | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Freeport-McMoRan: Financing an Acquisition are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Freeport Mcmoran can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Freeport Mcmoran can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Manufacturing automation
– Freeport Mcmoran can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Freeport Mcmoran in the consumer business. Now Freeport Mcmoran can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– Freeport Mcmoran can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Freeport Mcmoran in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Building a culture of innovation
– managers at Freeport Mcmoran can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Learning at scale
– Online learning technologies has now opened space for Freeport Mcmoran to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Better consumer reach
– The expansion of the 5G network will help Freeport Mcmoran to increase its market reach. Freeport Mcmoran will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Freeport Mcmoran to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Freeport Mcmoran can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Freeport-McMoRan: Financing an Acquisition, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Using analytics as competitive advantage
– Freeport Mcmoran has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Freeport-McMoRan: Financing an Acquisition - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Freeport Mcmoran to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Buying journey improvements
– Freeport Mcmoran can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Freeport-McMoRan: Financing an Acquisition suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Threats Freeport-McMoRan: Financing an Acquisition External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Freeport-McMoRan: Financing an Acquisition are -
Consumer confidence and its impact on Freeport Mcmoran demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Freeport Mcmoran with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Shortening product life cycle
– it is one of the major threat that Freeport Mcmoran is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Stagnating economy with rate increase
– Freeport Mcmoran can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Technology acceleration in Forth Industrial Revolution
– Freeport Mcmoran has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Freeport Mcmoran needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Freeport Mcmoran needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Freeport-McMoRan: Financing an Acquisition, Freeport Mcmoran may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Freeport Mcmoran can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Freeport Mcmoran in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Regulatory challenges
– Freeport Mcmoran needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Freeport Mcmoran will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Freeport Mcmoran can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Freeport-McMoRan: Financing an Acquisition .
Weighted SWOT Analysis of Freeport-McMoRan: Financing an Acquisition Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Freeport-McMoRan: Financing an Acquisition needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Freeport-McMoRan: Financing an Acquisition is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Freeport-McMoRan: Financing an Acquisition is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Freeport-McMoRan: Financing an Acquisition is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Freeport Mcmoran needs to make to build a sustainable competitive advantage.
