Adopting Strategies for Implementing an International Takeover

Kaur, Shaan

Adopting Strategies for Implementing an International Takeover

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Adopting Strategies for Implementing an International Takeover

Introduction

It is a fact of business life that some companies decline while others thrive. The ones that die often have assets that other firms covet, so some type of merger or acquisition is likely to occur. Three types of alliances—takeover, joint venture, and strategic alliance—make up the majority of mergers between companies. Takeovers can be hostile or planned and involve the complete incorporation of one company by another (Gordon, 2002.) Joint ventures occur when two separate companies complete a partial merger of operations (Franko, 1989.) A strategic alliance occurs when competitors share markets to increase the overall share for both companies (Dussuage & Garrette, 1995.) All three arrangements ......Sample Version

Financial Factors

Economics are the main focus of takeover considerations. The purchasing company must consider whether the acquisition is worthwhile, how it will affect the purchase of its target and what impact that purchase will have on its obligation to shareholders. In the case of the Maersk acquisition of PONL it was a matter of gaining larger market share. ‘Some Maersk executives complain that many of them [customers] were enticed away by lower rates offered by competitors” (Beddow, 2006). The company obviously did not abide by one of the chief financial rules of acquisition which is as Markides (1994) states,

“International acquisitions allow firms to diversify abroad and this has been theorized to provide three broad types of benefit: operational, strategic and financial benefits… [operational] Firms invest abroad in order to exploit intangible firm-specific assets, the markets for which are characterized by various imperfections, including immobilities, limited information, and monopoly. These assets include superior marketing skills, product differentiation, patent-protected technology, superior managerial skills, economies of scale, and special government regulations that create barriers to entry for other firms...[strategic] If an opportunity is seized by a competitor, its profitability improves while profits are reduced for rival firms. By acquiring foreign competitors, a firm brings a more diverse stock of specific assets under its control and can therefore seize more opportunities. In this way it enhances its own position while preempting a competitor from improving its position… [financial] found the multinationals to be more profitable than domestic firms.”

These three points need to be planed for in order for an acquisition to be successful, but there is also the company being acquired and its own shareholders.

There are three types of risk that need to be assessed by the acquiring company according to an article by Lee and Caves (1998.)

“The first distinction is between risk for the enterprise and risk for the individual investor. We simply assume that business risk matters to the enterprise and hence to the researcher studying its behavior. The MNE can be concerned about risk without being technically risk-averse: A risk-neutral firm values information likely to help it distinguish between good and bad projects.” Second “The MNE may or may not be able to recover the value of resources committed to what it discovers is a bad project.” And third “The other distinction is between projects that are unconditionally good or bad and projects whose payouts depend on the assets or capability of the firm undertaking them. In the latter case, the FDI project that turns out badly for its sponsor might perform well for another firm.”

These risks involve whether the acquiring firm will be fiscally responsible if it goes through with the takeover bid. Since shareholders have a major stake in this decision they need to be apprised of these risks and the company needs to be up front in the manner of merger and where the money is going to come from for the acquisition.

References

Abbasi, Sami M., Hollman, Kenneth W., & Murrey Jr., Joe H. (1991). Merger mania: Human and economic effects. Review of Business. 13(1-2). 30-60.

Beddow, Matthew. (2006). Floored. Containerisation International. p. 34-35.

Doukas, John A. & Lang, Lhp. (2003). Foreign direct investment, diversification and firm performance. Journal of International Business Studies. 34(2). 153-175.

Dussuage, Pierre, & Garrette, Bernard. (1995). Determinants of success in international strategic alliances: Evidence from the global aerospace industry. Journal of International Business Studies. 26(4). 505-540.

Franko, Lawrence G. (1989). Use of minority and 50-50 joint ventures by United States multinationals during the 1970s: The interaction of host country policies and corporate strategies. Journal of International Business Studies. 20(1). 19-40.

Gordon, Mark. (2002). Takeover defenses work. Is that such a bad thing? Stanford Law Review. 55(3). 819-840.

Kim, Keeho, Henderson Jr., Glenn V., & Garrison, Sharon Hatten. (1993). Examination of Tobin's Q for takeover firms. Quarterly Journal of Business and Economics. 32(1). 3-25.

Lee, Tung-Jean, & Caves, Richard E. (1998). Uncertain outcomes of foreign investment: Determinants of the dispersion of profits after large acquisitions. Journal of International Business Studies. 29(3).563-600.

Mariotti, Sergio, & Piscitello, Lucia. (1995). Information costs and location of FDIs within the host country: Empirical evidence from Italy. Journal of International Business Studies. 26(4). 815-840.

Markides, Constantinos. (1994). Shareholder benefits from corporate international diversification: Evidence from U.S. international acquisitions. Journal of International Business Studies. 25(2). 343-380.

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Nayar, Nandkumar & Switzer, Jeannette. (1998). Firm characteristics, stock price reactions and debt as a method of payment for corporate acquisitions. Quarterly Journal of Business and Economics. 37(1). 51-75.

Ramamurti, Ravi. (2001). The obsolescing 'Bargaining Model'? MNC-host developing country relations revisited. Journal of International Business Studies. 32(1). 23.

Sacks, Jeremy David. (1994). Monopsony and the archers: Rethinking foreign acquisitions after Thomson-LTV. Law and Policy in International Business. 25(3). 1019-1057.

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Trifts, Jack W. (1991). Corporate takeover bids, methods of payment and the effects of leverage. Quarterly Journal of Business and Economics. 30(3).33-60.

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