International Mergers Essay

Published: 2020-04-22 15:24:05
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Recent years have seen waves of mergers and acquisitions occurring in the international arena. Whilst the nature of such M & A activity has enlarged from being mostly IT focussed in the 1990s to include other areas like consumer goods, automobiles, and metals in the 2000s, its intensity remained unabated until the onset of the global financial crisis in 2008. Although M & A activity in the domestic space has continued to occur despite the high failure rate of such initiatives, international M &A s face the additional challenge of having to overcome issues of different national cultures.

The recent break-up of Daimler Chrysler evidences the difficulties that such initiatives face and the enormous harm that can occur if they do not work. This dissertation attempts to investigate the numerous challenges that confront the managements of the two concerned organisations, the hazards posed by such challenges, and the measures that can be adopted to overcome them. Table of Contents Serial Details Page Abstract 2 1. Introduction 5 1. 1. Background and Overview 5 1. 2. Definition of Problem 8 1. 3. Aims and Objectives 12 2. Literature Review 14 2. 1. Motivation for International M & A Activity 14 2. 1. 1. Strategic Objectives

14 2. 1. 2. Other Drivers of International Mergers and Acquisitions 18 2. 2. The Cultural Context 20 2. 2. 1 National Culture 20 2. 2. 2. Organisational Culture 23 2. 2. 3 The Impact of Culture on International Mergers and Acquisitions 25 2. 2. 4 Overcoming Cultural Differences in International Mergers and Acquisitions 32 3. 0 Research Methodology 38 3. 1. Research Questions 38 3. 2. Choice of Research Methodology 38 3. 3. Quantitative and Qualitative Methods 39 3. 4. Choice of Methodology 41 3. 5. Primary and Secondary Data 41 3. 6. Ethics 42 4. 0 Data Collection 43 5. 0 Findings and Analysis 48 6. 0 Conclusions 52

Bibliography 53 1. Introduction 1. 1. Background and Overview Corporate mergers and acquisitions (M & A) are an accepted form of external growth and are becoming increasingly common with time. With business corporations having realised the benefits of M & A activity in terms of growth in sales, increase in capacity, accessing of new markets, obtaining of technology and skills, acquisition of brands, savings in costs, and achievement of synergies in areas of sales, production, and costs, it forms an integral component of the objectives and strategies of most forward looking and ambitious business firms (Gaughan, 2002).

Two decades of globalisation, along with progressive development of technology, intensification of competition, increasing pressure on costs, and the continual emergence of new equal skill/ lesser cost production and service centres in Asia, East Europe, and South America are accentuating the need for consolidation and for achieving leadership in costs and quality, the basic tenets of Michael Porters theory of competitor advantage (Gaughan, 2002). Such developments are also increasing the number of companies searching for appropriate M & A opportunities.

The enormous changes that have taken place in the global, economic, political, and trade scenario have added another dimension to the issue of M & A activity, that of international mergers and acquisitions (IMA). These pertain to those mergers and acquisitions that take place beyond the borders of specific countries and which are also known as global or cross border M & As. The collapse of the Soviet Union, the crumbling of the Berlin Wall, the emergence of East European countries, the formation of the European Union, and the dismantling of trade barriers led to a significant increase in M & A activity between European countries.

Apart from the remarkable developments in Europe, the last two decades also saw a wave of trade liberalisation and economic and financial reforms sweep through the developing world, and the emergence first of China and then of India on the global economic scene, bringing with them huge markets, strong production and service skills and cheap costs (Gaughan, 2002). With western businesses having realised the import of the enormous business opportunities that are constantly being generated on a global basis, the lid has been taken off IMA activity, which is now increasing furiously, particularly in the USA, the UK, and Europe.

While USA has always been the pioneer in merger and acquisition activities, UK too has registered high levels of mergers and acquisitions. With the European countries gaining momentum in mergers and acquisitions, international mergers and acquisitions also received a major boost. (International Mergers and Acquisitions, 2009) IMA is taking place in different forms, for example horizontal mergers, vertical mergers, conglomerate mergers, congeneric mergers, reverse mergers, dilutive mergers, and accretive mergers (International Mergers and Acquisitions, 2009).

Whilst IMAs are also driven by the same motives as regular M & A activity, international M & A helps companies in accessing markets in distant lands, allows companies to build global competitive advantage, and otherwise leads to build up of Foreign Direct Investment. IMA activity is also far more complex than regular M & A actions because of the presence of far greater complexities that arise from companies having to deal with different political structures, governmental regulations and policies, economical situations, and investment and other laws (Gaughan, 2002).

Despite the presence of such obstacles, international M & A activity was gathering pace until the onset of the financial crisis, which has effectively put all commercial and business activity in a state of suspended animation. 2006 was a record year for acquisitions worldwide when, for the first time, the annual value of these transactions exceeded US$ 4 trillion, and cross-border acquisitions alone amounted to a record high of US$ 1. 3 trillion (Larsen, 2007).

This trend continues in 2007, given that the transaction value of global acquisitions in the first three months of the year reached US$ 1. 13 trillion, setting up a record for the busiest first quarter in acquisition history. (Rottig, 2007) The size of North American IMA activity increased practically by 100 % in 2006 to USD 242 billion from USD 132 billion in 2005. The value of IMA deals in Europe in 2006 touched USD 451 billion (Rottig, 2007). Whilst the most of IMA activity took place in the US, it was followed by the UK and Germany (Rottig, 2007).

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