INTERNATIONAL BUSINESS FINANCE AND TRADE 1
International Business Finance and Trade
Section 1: International Finance
Common elements in cross border merger and acquisition
It is clear that mergers and acquisitions as well as company restructuring are a huge part of the corporate finance world. Each day that passes, investment financial institutions arrange mergers and acquisition deals that bring distinct organizations together to create larger corporations (Hill, 2011). Moreover when they do not establish big organizations from smaller companies, corporate finance transactions accomplish the opposite by facilitating the break-up of organizations through what comes out as spin-offs, carve-outs, and even stocks tracking. In the present world of globalization, there is stiff competition, which forces organizations to team up in order to make ends meet in an industry where specialized expertise is the order of the day (Moffett, StonehillEiteman, 2014).
Too much generic information!! Just stick to simply explanation of Coy A in one country takes over Coy B in another foreign country !!!
In essence, the primary purpose of an organization is to grow besides making profits in each of its productions. Thus, growth can be realized through the process of introducing or advancing novel merchandise or by expanding an enlarging the capacity of already established merchandise.
A merger is an amalgamation process that may incur two or more organizations that come together to create one single organization (Moffett, StonehillEiteman, 2014). Here, one organization remains while the others cease to have corporate existence, and the remaining organization acquires whole of the assets and the liabilities of the merged organizations. On the other hand, an acquisition is the case where one company takes over the ownership of the assetsor organization (Hill, 2011). This is the buy-out of a regulatingconcentrationin the share investment of aprevailingassociation.
A case in point involving TATA and‘Jaguar Land Rover’ is attainment, where Jaguar Land Rover relinquished its regulationto TATA through sell of shares that gave the Indiangiant numerous rights over the acquired English automakers (Gribben, 2013; TATA Motors, 2008).
Given this, there are a number of common elements in the procedure of facilitating a crosswayboundary‘merger and acquisition,’ and there are those that reflected in the TATA Motors’attainment of Jaguar Land Rover.In the process of accomplishing an acquisitionof an organization anywhere in the globe, there are three common elements that impact that process, even in the case of TATA Motors(TATA Motors, 2008).
Too general information !!! Just introduce the 3 common elements that you intend to use for TML taking over JLR !!!!
The first common element regards identification and valuation of the target (this relates identification Jaguar and Land Rover acquisition was cited as an excellent of an excellent organization as opposed to being a bad one).In accordance, valuation the acquisition, Jaguar and Land Rover wasthus regarded as a good organization based on their excellent reputation among the luxury vehicle segment of the automobile market and the bulky of asserts and technology they came with into Tata’s manufacturing conglomerate(TATA Motors, 2008).Even though Ford decided to sell its brand does not imply that Jaguar Land Rover is a bad company. This decision has all to do with Ford’s inappropriate strategy that led to the poor performance of thebrand before TATA came into view as an interest group.
These are 2 elements as Identification and Valuation are SEPARATE !!!! CHOOSE ONE
ALSO LACK OF PROPER DEFINITION OF WHAT IDENTIFICATION OR VALUATION REQUIRES (SUB-ELEMENT) AND NO DETAILED EXPLANATION OF HOW TATA ACHIEVED IT !!!!
The other important process regards a tender (which points to the accomplishmentof the ownership transformation deal). Nevertheless, this process may also be the approval of the target organization when a hostile takeover is not involved (this also engages regulatory approval and compensation settlement) (Tata Motors website, 2016).
2 ELEMENTS !!! REGULATORY APPROVAL AND COMPENSATION OF SETTLEMENTS ARE SEPARATE !!! CHOOSE ONE
In the case of Jaguar Land Rover, the acquisition was carried out in a compensation settlement basis kind of a tender where TATA paid about $ 2.29 billion for the process (cash deal). HOW DID TATA MANAGES TO RAISE SO MUCH CASH? DID TATA OBTAIN SHAREHOLDERS’ APPROVAL !!!The other common besides being very significantas aprocess in the international purchase process regards management of the post-purchase deal. This is the most challenging procedure for TATA Motors Company since once the loan for facilitation of the acquisition was approved, problems crept in. At this point, the loan that was needed for the acquisition of the cash deal has resulted into great uncertainty among TATA Motors investors and thereis a synergy problem that has come out (Tata Motors website, 2016).This implies that for a successful run, TATA Motors has to look out for ways of handling thesechallenges as they have serious impacts if they are not checked out appropriately.
HOW TO IS MISSING FOR 2ND ELEMENT !!!!
WHERE IS YOUR 3RD ELEMENT!!! (20% WEIGHTAGE??)
CONCLUSION (10% WEIGHTAGE?)
LIST OF REFERENCE (10% WEIGHTAGE??)
TATA Group and its core purpose
It is important to note that, TATA adheres to the process of stakeholder value creation as an administrative philosophy that concerns maximization of the interest of all its shareholders, comprising of clients, stakeholders, employers, and the society. This is its highest aim and as a long term feature of maximization, the company makes sure that its employment rates are upheld to the level of equal growth. This has resulted to the growth of the society from which the company draws its resources and sustenance (TATA Motors, 2008). For instance, in recent times (WHEN? YEAR? SOURCE?) Tata trusts’ overall grants have amounted to US$70 million, which is a significant amount to be sunk into the community’s welfare projects. Moreover, Tata held true to their philosophy and permitted JLR administration and workers to bring their expertise and experience to bear on the advancement of the business (TATA Motors website, 2016). RELATE SUCH ACTIVITY (BEFORE OR POST M&A) OF HOW TATA MEETS ITS CORE PURPOSE ??? OTHERWISE TOO GENERIC !!!
The other aspect is that the “Tata council for community initiatives” in recent times is involved in assisting the company in carrying out its action plan of enhancing the quality of life of the society through streamlining of community advancement. It also helps in streamlining social advancement, environment administration, and worker volunteering aims into corporate procedures. SUPERIFICIAL !!! DID TATA MEETS ITS CORE PURPOSE ???
Moreover, long term shareholder value creation regards identification of long term global trends and ten having to seed businesses that can capitalize on some of the trends as they strike to establish new social as well as business paradigms (TATA Motors, 2008).. Since their acquisition of Jaguar and Land Rover, the management TATA Motors has strived to make the attainment of this goal as it is reflected in the following segment.First it took on the challenge by obtainingJaguar Land Rover, which brought numerous advantages for the company, founded on its potentialpowers (TATA Motors website, 2016).
Jaguar Land Rover offered TATA access to expertise and technology that is useful in improving the quality of TATA merchandise and at the same time this translates to improving the life of the community through reduced negative impact. Based on this aspect also the acquisition n of Jaguar Land Rover implies that there will be less reliance on the Indiana market once the company offers excellent quality merchandise to mitigate competition. This has the capacity of expanding the marketplaceportion geographically and across diversemarketplacesections, which translates to shareholder importanceformation (TATA Motors, 2008).The acquisition implied that the acquisition of technology and expertise would allow TATA to enhance their low end vehicles without incurring any additional cost since it was paving an avenue for integration on the existing infrastructure (Tata Motors website, 2016).The production of cars relies on the research and development and by acquiring Jaguar Land Rover, TATA had a chance to limit the outlays in these fields and at the same time enhance its cars.The acquisitionto TATA Motors presented a chance to sell its products to the high-end market segment globally, which translated to value creationfrom stakeholders and its employees worldwide. This segment is also very appealing since it alwaysswamps with high demand for such kind of products, and the clients have one excellent attribute of being so loyal to the brand (TATA Motors website, 2016).
The acquisition created a major strength in that the synergy was established inareas of element sourcing, engineering, and design, and this is anadvantage as TATA uses Jaguar Land Rover expertise to gain the possibility of mitigating costs. Such savings will translate to shareholder value creation,while generating extra cash to sustain corporate social responsibility for the organization in areas it has its presence around the world.Given that at the time of the acquisition Jaguar Land Rover had three manufacturing sites that supply area of more than eight hundred acres, and two advanced design centers, the company was gaining control over a goodbusiness that has great assets and resources (Gribben, 2013). This is good venture that allows the company to create avenues for its workers to gain revenues. Besides, at the actual peak the company will be capable to create merchandises that will upsurge revenue generation to add significance to investors’ interests. In essence, this comprises that of the communities around it through provision of products and services as well as CSR.
VERY CONFUSING !!! TOO GENERAL AND NOTHING SPECIFIC
I)BEFORE M&A – ONE EVENT THAT TATA DID TO MEET ITS CORE PURPOSE (30%)
II)POST M&A – ONE EVENT THAT TATA AND JLR DID TO MEET ITS CORE PURPOSE (30%)
III)CONCLUSIONG (10%)
Section 2:International Investment and Trade
Exposure to Currency Risk
In this case Crosswell sold healthcare merchandise in Brazil Real currency to Material Hospitalar. Thus,Crosswell international’s supposed selling of health care products to Material Hospitalar has the currency risk because the payments to Crosswellinternational will supposedly be in Brazilian Real. The aim of foreign currency hedging for Crosswell was based on Crosswell’s selling or price of products in Brazilian real currency. EXTEND THE SENTENCES OR INCLUDE MORE SENTENCES ON PURPOSE OF HEDGING IN RELATING TO FX HEDGING WITH ACADEMIC REFERENCE
There were numerous aspects that impacted on FX rates changes that comprised of high inflation in US. This translated to an elevated US interest rate and this means more USD was required to carry out the transaction (UNCLEAR? FOLLOW GUIDELINES GIVEN WITH IMPACT ON CROSWELL). For exampleexample, presently one USD equals to 9 Brazilian Real and in recent times one USD has gone to as high as 12 Brazilian Real (Moffett, StonehillEiteman, 2014).
The second factor regards elevated trade deficit and when the USD is low the impact is that Crowell’s revenue will go high since one USDis equivalent to 12 Brazilian Real (BR).
(UNCLEAR? FOLLOW GUIDELINES GIVEN WITH IMPACT ON CROSWELL)
ONE MORE FACTOR !!!!
In other words, the risk is that when Brazilian Real is affected by inflation, its value might go so low, meaning that the company is at risk of losing money based on fluctuating forex exchange rates. (MODIFY THE INFLATION AS ANOTHER FACTOR)
The currency risk to Croswell international payment in Brazilian Real in the worst caseworst-casescenario is that since the US dollar payment is not a guarantee. Hence, Crosswellinternational is faced withthe possibility of weakening of the Brazilian Real against the US dollar at the time when they get the payments in a six days’ time span for every payment agreement.In other words, the risk is that when Brazilian Real is affected byaffected by inflation, its value might go so low, meaning that the company is at risk of losing money based on fluctuating forex exchange rates. There are numerous aspects that come with this that impact on the foreign exchange rate, and they include high inflation in the US, which translates to US dollar interest rate. This is a problem since every payment made in US dollars will then attract a high transaction rate in terms of interest.This implies that there is higher US dollar currency value against the Brazilian Real (in such kind of scenario),which offers an unfavorable condition forCrosswellinternational when the receivables are made in Brazilian Real. This is because, the low prices offered in Brazil and when converted to the USD translates to a very low dollar rate, which means at this time the company sells at a negative rate.(Shapiro, 2012).This happens because when there is a scenario of elevated trade deficit for US, (for instance, whnewhen there is high demand for sanitary pads manufactured in US overseas) which leads the federal government to borrow more US dollars to meet foreign payments. Here, in this case, the US dollar decline against the Brazilian Real presents a favorable scenario to Crosswell international in a way that the payments will not encounter huge costs.
LOTS OF GOOD STUFF SO LINK THESE EXPLANATION BACK TO RESPECTIVE FACTORS AFFECTING FX WITH PROPER SUB-HEADER INSTEAD OF WRITING A STORY BOOK WITHOUT CHAPTERS !!!!
WRITE A FEW SENTENCES TO SAY: INTRODUCING AN EXAMPLE OF FX HEDGING STRATEGY APPLIED TO CROSWELL INT’L
Date / Spot Market / Forward Market11-Aug-16 / Current Exchange Rate is 1 US$=3.13 Brazilian Real
Forward rate is 1 US$ =3.17 Brazilian Real / Sell Brazilian Real Forward for settlement on 11 Aug 2016 at BR$3.17 to 1 US$ for Brazilian Real of BR$1,202,261.81--- being the sale of health care products (or US$ 379,262.40)
10-Oct-16 / Spot Rate is 1 US$ = 3.20 Brazilian Real / Received BR$1,202.261.81 converted at spot of BR$ 3.20 = US$1, is US$ 375,706.82
Opportunity Gain of US$379.262.40-US$375,706.82=US$355.59
On June 7, the spot rate of BR is BR3.20 vs BR3.17 on 11 Apr 08 (Oanda, 2016), as a result BR ended weaker worth lesser by US$355.59 (US$379.262.40 lesser US$375,706.82), Crosswell had eliminated the FX risk by selling the Brazilian FX forward contract. Crosswell will benefit when Brazilian Real appreciates and thus increase their sales revenue from the sale of health care products. However, if the FX forward contract is not created, Crosswell would have converted BR at the spot rate of BR3.20 to 1 USS resulting in receiving lesser USD when BR depreciates. However, the sale of FX forward contract on Brazilian real helped Crosswell to lock the exchange rate and reduce their Brazilian real foreign exchange rate fluctuation against them.
In order to hedge out the currency risk that Crosswell is set to encounter, the company may arrange to have a forex forwardswith its Brazilian distributor.In this case, Crosswell willsign contract in present terms to sell the products to Material Hospitalar. The terms of the contract will demand that Hospitalar pays in BR in a six months’ time. Then Crosswell willhave a known BR receivable, an over the next six months, the dollar value of the BR receivable will augment or decline based on fluctuations in the exchange rate. Hence, in order to limit this uncertainty regarding the discourse of the exchange rate, Crosswellwill thenelect to lock in the rate at which he will sell the BR and purchase dollars in about six months. Hence, to attain this Crosswell will hedge the BR receivables by locking in a forward. This kind of arrangement will leave Crosswell under full protection when the currency fluctuates below the contract level, but all the benefits will be given up when the currency appreciates. This will put Crosswell at a huge disadvantage since it faces unlimited outlays when the currency escalates. This is thus, a huge drawback for many establishments that regard this as the real outlay of a forward contract hedge.
CONCLUSION? (10%)
SECTION 2 QUESTION B (ii)
How Management Guidelines Minimize Cost of Funding Working Capital Requirements
This encompasses shipping the products to Material Hospitalar, then invoice the company, and trust the Brazilian firm to pay within the prescribed time limits. The payment might be made by “draft,” by “cheque” and by bank transmission. Crosswelladministration can successfully manage its expenditure of financingoperationalprincipal requirements by having an open account in place. This will be a convenient approach of payment in the foreign transaction since the buyer or importer is well established in Brazil. Moreover, whenit is confirmed that MaterialHospitalar has along and favorable payment record, it will confirm the credit worthiness that will enable this kind of capital control by the management of Crosswell (Collins & Frankle, 2013).
Importers prefer such kind of transactional arrangement of an open account terms over numerous otherapproaches of payment. This is because open account sales providea simplified and flexibleprocurement processes (Hill, 2011). This also cost an importer like Material Hospitalar less when compared to other approaches such as letters of credit. In addition, the open account approach of payment is the most secure approach for Material Hospitalar as thy have power over both the goods and the funds. For Crosswellselling open account will help it enhance Material Hospitalar’scompetitiveness since the company is set to prefer procurements on the open account. The other thing is that coordination with financial institutions is not needed with this open account, which will help in saving on bank charges forCrosswell.
The other guideline that Crosswell managementcan engage in is the selling on consignment where shipping of products to Brazil will allow the company upholds its title on them until they get sold to a third party. This case, Material Hospitalar will not make payments until afterthe goods imported from US have been sold. Consignment sales with offer advantages to Crosswell since the company’s market area can be expanded even whenthe company cannot find a good importer to procure the goods (Madura, 2013).Even though consignment sales are extremely risky to Crosswell since it has to bear the financial risk for the goods until the goods are sold by Hospitalar.In case there is foreign exchange in Brazil,Crosswellcan arrange for insurance to safeguard against credit risk and partisan threat that can affect consignment sales, even though this limits the profits.