International Business

Cross Border Mergers & Acquisitions

Prof Bharat Nadkarni

International Business : Prof Bharat Nadkarni

Mergers & AcquisitionsM & A involve the combination of two organisations. The term merger refers to the integration of two previously independent organisations into a completely new organisation;Acquisition involves the purchase of one organisation by another for integration into the acquiring organisation.

Organisations have a number of reasons for wanting to acquire or merge with other firms, including diversification or vertical integration; gaining access to global markets, technology, or other resources; and achieving operational efficiencies, improved innovation, or resource sharing. As a result, M&A have become a preferred method for rapid growth and strategic change.

International Business : Prof Bharat Nadkarni

Cross Border Mergers & acquisitionsM & A have been a very important market entry strategy as well as expansion strategy. It may be noted that the major part of the recent FDI has been driven by cross border M&As. Between 1980 and 2000, the value of cross border M&As grewat an average annual rate of over 40%. It continues to be a powerful driver of international investment and globalisation. Several industries, such as automobiles, pharmaceuticals, banking, telecom, etc. have undergone a global restructuring as a result of cross border M&As.Advantages of M&As1. Market entry2. Possession of marketing infrastructure3. Achieving economies of scale4. Increasing the market power

International Business : Prof Bharat Nadkarni

5. Diversification6. Acquisition of technology7. Use of surplus funds8. Optimum utilization of resources and facilities9. Product mix optimisation10.Pre-emptive strategy (to block competitor from acquisition)11. Vertical integration12.Tax benefits13.Logistical factors14.Acquisition of brands15.Minimisation of Risk16.Regulatory factorsEx. Asian Paints takeover of Singapore based Berger paints – entry to 11 countries incl China. Tata Steel – Corus – entry toEurope and Latin America.

International Business : Prof Bharat Nadkarni

Disadvantages of M&As1. Indiscriminate acquisitions land several companies in

financial and other problems2. When company is taken over, its problems are also often

inherited3. If adequate homework was not done and the evaluation

was not right, the acquisition decision could be wrong.4. Some of the units acquired would have problems such as

old plant, obsolete technology, surplus or demoralised labour

5. The company may not have the experience and expertise to manage the unit taken over if it is in an entirely new field.

International Business : Prof Bharat Nadkarni

Business Ethics & Social Responsibility1. Committed to National interest in which it operates.

2. Global issues like Environmental discipline

3. Millennium goals as defined by UN.

4. Standardisation of Global strategies