CROSS-BORDER

MERGERS AND
ACQUISITIONS
DR. RANDALL O.
CHANG
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INTRODUCTION, HISTORY,
TERMINOLOGY

Mergers (1)
- Two companies come together
through mutual consent
- Definition in name: merger of
equals (common size)
- New company is formed with new stock
issuance and legal identity
- New stock issuance held by new company
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MERGERS (2)
- A + B = C; A and B cease to exist
- Who is in the drivers seat:
controlling
shares, leadership role
- Merger is a definition, not an
implementation
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Acquisitions (1)
One company takes over another company
- Big firm takes over smaller firm
- A + B = A; B ceases to exist
- Big firm holds majority stock with the remainder
for market purchase
- Friendly takeovers (mergers) vs. hostile
takeovers
(acquisitions)
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Acquisitions (2)
- Surface appearances vs. internal implementation
- Words are different, effects are the same
- Acquired firm sees merger, acquiring firm sees
acquisition
- Goal: avoid negative impression
(customers/employees)
- Hostile takeovers often involve imposed
shareholder
rights (poison pill)

Joint Ventures and Alliances:

Partnerships
- Two companies coordinate and integrate
operations
- Equity vs. non-equity partnerships
- Mergers, acquisition, equity partnerships:
M & A
- May or may not result in creation of a new
legal entity
- An integrated union where people and
organizations join to create added value
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Types of M&A (1)

- Horizontal: 2 direct competitors in
same
market and same products
- Vertical: company A and company
B which is
As customer or supplier
- Market extension: company A and
company
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Types of M&A (2)

- Product extension: company A and company
B with different but related products in same
markets
- Conglomerate: company A and company B
no common ties or similarities (different
products and different markets)
- Reverse: smaller company B acquires larger
company A
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Cross-Border and Domestic M&A:

Similarities and Differences (1)
- Common financing methods: loans,
cash,
factoring, stock exchange, hybrid
- Common advisory services:
investment
banks
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Cross-Border and Domestic M & A:

Similarities and Differences (2)

- Investment banks identify

candidates, prepare feasibility
studies, arrange financing
- Should the firm raise more
capital? Public
offering?
- Should the firm enter new
markets? At
home? Abroad?
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Cross-Border and Domestic M&A:

Similarities and Differences (3)
- Should the firm merge/acquire
another firm?
- Should the firm sell out to
another
company? At what price?
- Common strategic motives: market
expansion, penetration, dominance;
economies of scale
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Cross-Border and Domestic M&A:

Similarities and Differences (4)
- Cross-border uniqueness
- Leads to FDI
- M&A causes FDI, FDI causes M&A
- Government regulations (both
sides)

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Cross-Border and Domestic M&A:

Similarities and Differences (5)
- Cross-border uniqueness
- Corporate culture: shared values and
beliefs that underlie a firms identity
(observable artifacts, espoused values,
basic assumptions)
- National culture: beliefs and values
about how people should act (customs,
language)
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Short History of M&A

- Cyclical and dependent upon economic
environment
- Good times: increasing M&A, bad times:
declining M&A
- Waves of consolidation, convergence, and
divestiture
- Driving force: global competitiveness
- Large global companies: more income, more
employees outside than inside their home
countries
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Six Stages of M&A History

1. 1897 1904
a. Industrial Age at full growth
b. Monopolies (railroads, utility
companies) and horizontal
mergers
c. Stock market crash drives down
activity
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Six Stages of M&A History

2. 1916-1925
a. Oligopolies and mergers
b. Economic boom after World War
I
c. International trade and foreign
direct
investments
d. Growth of the auto industry

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Six Stages of M&A History

2. 1916-1925 (continued)
e. Horizontal and conglomerate
mergers
f. Main players are metals, food
products,
transportation equipment,
chemicals
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Six Stages of M&A History

3. 1965-1969
a. Conglomerate mergers
b. Fueled by rising stock market
and
interest rates (inflationary
trends)
c. 1969 changing government
policies
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Six Stages of M&A History

4. 1981-1989
a. Deregulation in many industries
b. Main players are oil and gas, pharmaceuticals, banks, and airlines
c. U.S. companies initiate foreign
takeovers

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Six Stages of M&A History

4. 1981-1989 (continued)
d. Foreign companies follow by
taking
over U.S. companies
e. Beginning of cross-border M&A
(U.S., U.K., Japan)
f. Gulf War drives down activity
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Six Stages of M&A History

5. 1992-2000
a. Globalization Age begins
b. High tech development
c. Stock markets on the rise
d. Solidification of EU
e. Main players: banks, telecommunications
f. Stock market and high tech bubble burst
drives down activity

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Six Stages of M&A History

6. 2000-2014
a. Growth of Middle Eastern
markets
b. Growth of China market
c. Recession and Comeback
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Modern stages of Cross-Border M&A

1. 2007-2010: global recession

2. 2011-2012: slow and cautious recovery
3. 2013-1024: business boom led by U.S.
and Europe
4. Increased activity by China
a. 2012: approximately $11.0 billion
b. Wandas group purchase of AMC; AIGs
aircraft leasing business
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