International M&As Flashcards
Entry modes
Greenfield JV
- ownership = shared
- establishment - Greenfield
Greenfield WOS
- Ownership = full
- Establishment = Greenfield
Partial Acquisition
- Ownership = shared
- Establishment = acquisition
Full Acquisition
- Ownership = full
- Establishment = acquisition
M&A motives
Access to proprietary assets
• Speed of accessing new knowledge/resources/information • Technological synergies (sharing the cost of innovation)
• Productive synergies (economies of scale)
• Diversification
• Control of supply chain
Ex-ante theory: Transaction cost economics
Companies choose between buying on the market or making it themselves (hierarchy)
What choice is made depends on transaction costs
• Bounded rationality (search & information costs)
• Opportunistic behaviour
• Asset specificity
Ex-ante theory: Information economics
Target and focal firm do not have the same information
Adverse selection
• (financial) data reflects the status of the target firm well enough?
Moral hazard
• Will a partner behave opportunistically?
To what extent can a company rely on signals to make up for a lack of information?
Ex-ante theory
Not all decisions are fully rational
• Empire-building
• Repetition of previous strategies
• Learning/experience
Varieties of Capitalism and M&As
(1) Importance of M&As in the economy
(2) Means of payment varies across economies
(3) M&A outcomes also likely vary across national business systems
VoC and M&As: Importance
Ownership structure
• Dispersed in U.K. and U.S.
• Concentrated in continental Europe and developing economies
• Large blockholder present to block unsolicited takeover bids?
Legal protection of rights of minority shareholders
• Importance of the rights of minority shareholders in U.K. and U.S.
Purpose of the corporation
• Shareholder value vs. stakeholder value
VoC and M&As: Means of payment
Cash deals
Equity Swaps
Cash deals
Company A paying real $ for B. The latter no longer exists
• Shareholders of B always win – at least in U.K., U.S.
• Shareholders of A = assume all of the risks and rewards
• Less funds for R&D
Equity swaps
The issue of new shares by A to B for a new company AB
• The rewards and the risks are shared between the shareholders of A and B
• Mega deals are possible
• Temptation to inflate bid premiums
• Greater legal protection of minority shareholders is provided in the UK/USA as compared to China and Russia for instance
VoC and M&As: Outcomes
Corporate restructuring
• Company A acquiring company B in the UK/USA will often do so in order to
restructure company B
• Company A may fire some of the workforce of company B after its acquisition
• This is possible in the UK/USA not only because of ownership diffusion and greater legal protection for minority shareholders, but also because of labour markets that are flexible
• Post-acquisition corporate restructuring strategies is more extensive in the UK/USA because of the institutional complementarities between ownership diffusion/legal protection of minority shareholders AND flexible labour markets
Ex-post theory: Success?
Synergy prerequisite for successful acquisitions/partnerships?
E.g., Barney (1988)
• Relatedness
Focus on market power, market share, or economies of scale
Theories on friction, integration difficulties, and monitoring costs
Culture-specific theories
Communication-based theories
M&A Approaches
Acquisition Integration Approaches:
Preservation
- need for organizational autonomy = high
- need for strategic interdependence = low
Holding
- need for organizational autonomy = low
- need for strategic interdependence = low
Symbiosis
- need for organizational autonomy = high
- need for strategic interdependence = high
Absorption
- need for organizational autonomy = low
- need for strategic interdependence = high
Integration
Structure = absorb acquired company
Activities = integrate core and supporting activities
Top Executives = replace
Autonomy= none, or very limited
Speed of integration = rapid
Partnering
Structure = keep acquired company separate
Activities = selectively coordinate a few key activities
Top Executives = retain
Autonomy = Near total
Speed of Integration = Gradual
