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Mergers & Acquisitions

Mergers & Acquisitions. Veronika Hermann Claudia Kaufmann Hanna Weinzinger. Contents. Introduction Basic Terms Situation in Europe Theory of Acquisitions Choice between Greenfield & Acquisitions Clusters Case Study. What is a merger?.

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Mergers & Acquisitions

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  1. Mergers & Acquisitions Veronika Hermann Claudia Kaufmann Hanna Weinzinger

  2. Contents • Introduction • Basic Terms • Situation in Europe • Theory of Acquisitions • Choice between Greenfield & Acquisitions • Clusters • Case Study

  3. What is a merger? A merger occurs when one corporation is combined with and disappears into another corporation

  4. Federal Trade Commission • Vertical merger • Horizontal merger • Product extension merger • Market extension merger • Conglomerate merger

  5. What is a corporate acquisition? A corporate acquisition is the process by which the shares or assets of a corporation come to be owned by a buyer • Asset deal • Share deal

  6. Situation in Europe • Mostly strategic alliances • International trend towards acquisitions

  7. Situation in Europe Differences between alliances on the one hand and mergers and acquisitions on the other hand: • Consensual decision-making • Transient nature and reversibility of alliances

  8. Situation in Europe What should the European firms do? • More offensive strategy • Transfer of know-how and skills  Complementary alliances

  9. Strategically unrelated firms NPV(A+B)=NPV(A)+NPV(B) • Normal economic profit • Not economically viable

  10. Strategically related firms NPV(A+B)>NPV(A)+NPV(B) • Above-normal economic profits: target firm • Normal economic profits: bidding firm • Economically viable

  11. Why are there so many M&A? • Ensuring survival • Free cash flow • Agency problems • Managerial hubris • The potential for above-normal profits

  12. Rules for Bidding Firm Managers • Search for rare synergies • Keep information away from other bidders • Keep information away from targets • Avoid winning bidding wars • Close the deal quickly

  13. Rules for Target Firm Managers • Seek information from bidders • Invite other bidders to join the bidding competition • Delay but do not stop the acquisition

  14. Organizing a merged organization • Postacquisition coordination and integration • Problem: operational, functional, strategic and cultural differences  additional costs

  15. Choice of entry modegreenfield vs. acquisition Transaction Cost Theory Theory of Mergers and Acquisitions (Oster, 1990) Theory of the Growth of the Firm (Edith Penrose, 1959) Capital Market Imperfections (Chatterjee, 1990)

  16. Transaction Cost Theory • cost structure of entry modes • locating facilities abroad more efficient than exporting • choice between greenfield and acquisition • firm specific advantages (superior organizational or technical ability)

  17. Transaction Cost Theory • high R&D intensity – greenfield investment • little knowledge of foreign market – acquisition • high diversification – acquisition

  18. Mergers and Acquisition TheoryOster (1990) • two reason to prefer acquisition vs. greenfield • value of assets acquired lower than replacement cost • possibility to leverage firm specific advantage more efficiently

  19. Mergers and Acquisitions Theory • strong value of HC vs. FC – acquisition • lower stock market prices abroad – acqui • acquiring rivals – less competition • speedy entry via acquisition • little knowledge of foreign culture – acqui • high concentration of target industry – acqui

  20. Theory of the Growth of the FirmPenrose (1959) • low endowment in Human Resources – acquisition • high size of subsidiary realtive to headquarter - acquisitions

  21. Capital Market ImperfectionsChatterjee (1990) • high grade of leverage – acquisition • greenfield more expensive than acquisition

  22. Entry Mode Choice & International Strategy • global strategy • multidomestic strategy • transnational strategy • international strategy

  23. Entry Mode Choice & International Strategy • global firms (cheap production in few locations, same marketing strategy/products everywhere) – greenfield • Multidomestic firm (locally adequate products & marketing strategy, production & R&D in every market) - acquisition

  24. Relationship headquarter - subsidiaries • greenfield higher level of control over subsidiaries than acquisition • greenfield more expatriates than acquisition • acquisition higher level of local responsiveness than greenfield • Over time headquarter – subsidiary relationship will converge towards preferred entry mode

  25. Synergy Realization of Mergers and Acquis • an integrative model • combination potential • organizational integration • empolyee resistance • synergy realization

  26. An integrative Merger and Acquisition Model Combination potential Synergy realization + + - Organizational integration + Employee resistance + +

  27. Synergy Realization of Mergers and Acquis • great management style similarities = great organizational integration = little empolyee resistance • cross border M&As, combination potential (+), organizational integration (-), empolyee resistance (+) • great size of target relative to bidder = great combination potential = great organizational integration

  28. Case Study

  29. Introduction • Company and group • History • Organizational Structure • Divisions • M&A Process • M&A-Practical Experiences

  30. Who is Mondi Packaging? • Mondi: international, integrated forest products and packaging group • manufactures a range of products including: Pulp, Graphic papers, Packaging papers, Converted packaging (including corrugated board), Solid wood products, Wood chip.

  31. History • 1997-1998: acquisition of the group`s first 2 plants in Poland • 1999: acquisition from Amcor Fibre Packaging Europe of 21 plants in the UK and France • 2001: acquisition from Danisco UK of 16 plants and 2 paper mills • 2001-2002: Acquisition of 2 sheet plants in Ireland • 2002: Acquisition of 8 plants in France and the UK through the joint purchase of La Rochette with Saica, as well as the acquisition of an additional plant in the UK and in Poland. • 2004 : Acquisition of 10 plants and 5 paper mills in Austria, Germany, Poland, Switzerland, Italy, Belgium and China through a merger with the Roman Bauernfeind Group.

  32. Organizational Structure

  33. Divisions • Paper Division • Corrugated Division • Bag Division • Flexibles Division • Coating Division

  34. M&A Process • Sourcing • Due Diligence • Valuation • Negotiation • Contract • Closing

  35. Case Study • Interview with Mr. Stürzenbecher, responsable for M&A • criteria to search for acquisitions: • Customers • Machines`quality • Company`s organisation

  36. Case Study • Places to gain market shares • China • India • Arabic countries

  37. Problems • Different cultures • Different strategies • Different aims • Different languages

  38. Solutions • Expatriates • Integration • Meetings, seminars-> to get to know the foreign working colleagues

  39. THANK YOU FOR PAYING ATTENTION Hermann Kaufmann Weinzinger

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