Type of Investment Flashcards
What are Wholly-owned subsidiaries?
Firm that owns 100% of stock
What is a Greenfield operation?
Establishment of a new operation in a foreign country “from scratch”
What is Acquisition?
Buying control of a corporation
What is M&A?
Merger and Acquisition
What is involved in the Pre-Deal/Planning during the process of M&A?
Basic Strategy Screening Exploratory Talks Structure Simulation Evaluation Feasibility Contact
What is involved in the Transaction phase of the process of M&A?
Due Diligences Pre-Closing- Integration-Plan Evaluation Internal Decisions Negotiations Anti-Trust Closing
What is involved in the Post-Deal/Integration phase of the process of M&A?
Post-Closing- Integration-Plan Organizational / Legal Integration Human Resources Integration Cultural Objectives Reaching of Objectives
What is a key factor of International competition law?
There is No international private law for cross-national acquisitions
What are the two main principles for Domestic anti-trust legislation?
Effects Doctrine
Comity Principle
What is the Effects doctrine for Domestic anti-trust legislation?
Countries need to be able to effectively protect competition under their jurisdiction
What is the Comity Principle for Domestic anti-trust legislation?
Negative comity: consideration of the effects of any action on the other party
Positive comity: entitles one authority to refer a case to another authority
What have been some WTO actions regarding antitrust?
-Set up the working group for trade and competition policy to identify any areas that need improvement
-Instructions for working group to clarify core principles, provisions on hardcore cartels, and modalities for voluntary cooperation
-No consensus could be reached on modalities for negotiations in the field of
international antitrust law
-WTO General Council decided that the issue of international antitrust policy “will not form part of the Work Program set out in that declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round”
What is Horizontal Acquisition?
Acquired company works on same value chain level
What is Vertical Acquisition?
Target firm operates up- or down-stream in the value chain
What is Concentric Acquisition?
Acquired company is in same industry
What is Conglomerate Acquisition?
Different industry
What is Friendly Acquisition?
Acquired company agrees with acquisition
What is Hostile Acquisition?
(Vodafone’s acquisition of Mannesmann)
What is Builder acquisition?
Acquired company is integrated in acquiring company
What is Raider Acquisition?
Acquired company is decomposed, valuable parts are sold
What is Cash Payment Acquisition?
Acquiring company pays owner cash
What is Exchange of stock Acquisition?
Stock owner receives stocks of acquiring company or new company
What are Structural Barriers to cross-border acquisitions?
Statutory (strong power of supervisory boards, unions councils)
Regulatory (antitrust regulation)
Infrastructure (absence of legal or investment banking services)
What are Technical (management) barriers to cross-border acquisitions?
Families dominate shareholding
Powers to limit maximum voting rights
What are Information barriers to cross-border acquisitions?
Accounting (low compliance with international standards)
Shareholders (shareholding structure not known)
Regulation (procedures not known)
What are Culture and Traditions barriers to cross-border acquisitions?
Value system (premium on confidence rather than formal contracts)
Attitude (unwillingness to disclose information)
What is Due Diligence in Acquisitions?
all activities of acquiring, verifying, analyzing, and documenting information about potential acquisitions prior to signing a contract
Where does Due Diligence originate from?
American securities law, required diligence for transactions to verify the quality of the assets
What is due diligence in strategic management?
Instrument for strategic planning
Investigating historical development, current organization, the management and important company data of the potential acquisition
Learning about market, company’s strategy and employees
What are the goals of Due Diligence?
Discovering chances and risks for present and future
Definition and quantification of synergies and the “strategic fit“
Evaluation and pricing of the company
Encounter and evaluation of the management
Preparations for a fast integration of the acquired company
Improving acquisition success and hit ratio
What are the advantages of Acquisition over Greenfield?
Table, pg 89
- speed of establishment
- access to local partners
- competitive markets
What are the advantages of Greenfield over Acquisition?
Table, pg 89
- Integration of subsidiary
- avoidance of governmental/legal interactions
What fosters success of FDI?
Economic distance between home and host country
What do less experienced countries need to survive investments?
Diagram, pg 91
Exploitation of firm resources
Greenfield investments more useful
What do more experienced countries need to survive investments?
Diagram, pg 91
Exploration of new technological capabilities
Acquisitions more useful
What are the five type of Acquisition?
Horizontal vs. vertical Concentric vs. conglomerate Friendly vs. hostile Builder vs. raider Cash payment vs. exchange of stock
What are 4 barriers to cross-border acquisitions?
Structural barriers
Technical (management) barriers
Information barriers
Culture and tradition
