The Costs and Benefits Of Cross Boarder Takeover, Merger and Acquisition Essay Sample
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The Costs and Benefits Of Cross Boarder Takeover, Merger and Acquisition Essay Sample
This article is made to discuss the essence of the cost and benefit of cross border take over, merger, and acquisition. I stated some facts about the M&A cross-borders and discussed the main factor which causes hindrance from the M&A transaction success.
In this discussion, I will explain the importance and advantage of the said topic in connection with its usage when it comes to decision making, strategy making, and most of all, in solving certain problems.
What is merger and acquisition?
Corporate merger is explained when two certain businesses merge from its said owned assets considering other liabilities. The said two entities combine and establish their business into a single corporation (QuickMBA, 2007).
Acquisition is the term used when a certain larger corporation or firm acquires a weaker firm while merger is said to be the combination of two corporations or firms with the same level or equal level (QuickMBA, 2007).
Facts about Merger and acquisition
The cross-border mergers and acquisitions are said to be the main force which motivates the sudden elevation in terms of overseas or foreign direct investment. As explained by the Industrial Organizations, M&A or merger and acquisitions have two main and or outstanding motives. The first one is the efficiency motives and the second one is said to be the strategic motive (Brakman, 2005).
The cross-border mergers are performing their at most in things regarding or having connections to issues like economy-wide shocks. This includes economic process or economic integration, changes in the control of the environment, or the possibility of having an imbalance business flow (Brakman, 2005).
Cross-border and M&A establishes a prime self propelled conveyance for FDI, mostly in the field of the FDI’s flows to those certain developed countries. The Cross-border M&A is said to stand for about 25-30% of the over all M&A activity (Brakman, 2005).
Cross-border M&A is also said to be efficiently connected to the group of developed countries. These developed countries include UK, Netherlands, Germany, and France which are said to be the leading countries regarding with the activity of cross-border M&As (Brakman, 2005).
Factors that affects merger and acquisitions
Researches show that mergers and acquisitions can either fail or succeed in certain transactions. It is a history that economists bases on M&A as their principle in the business industry hence since the failure of the merger and acquisitions suddenly went on a high rate, they were been alarmed that employees and other individuals and difference between the culture of the merged organizations affected by M&As are an important aspect or factor which causes the success or failure of a certain merger (Kirsten, 2007).
It has been discovered that culture plays a primary role when it comes to M&A; it considers the set of values, emotional aspects, things expected and matters in mind of the individuals within each organizations (Kirsten, 2007).
Levels where organizational level exists
- The values that connects the certain individuals performing in an organization, those values which are unchanged and still in a certain organization even if the organization’s membership changes (Kirsten, 2007).
- The organizations behavior or patterns of behavior. It is explained that a new employee who tends to work in a certain organization is imposed to behave in the same way or same pattern in which his/her colleagues does (Kirsten, 2007).
This factor explains the problems which are always connected with certain mergers. It is said that two mergers who differs in culture could experience conflict (Kirsten, 2007).
In explanation to this, the common result of merging being unaware of culture factor is the declining of employee’s morale, problems regarding communication, and causes doubt about the future (Kirsten, 2007).
Blending of cultures
It is really difficult to merge two organizations or companies.
The matters such as different issues and country pride considerations engaged in cross-border mergers are a possible factor that would result into difficulty and emotional struggle: this occurs often to those firms and or companies on the same level (Philip T. Ruegger of Simpson Thacher & Bartlett, 1999).
In trying to be successful at cross-border merger the choice of superior management, location of the headquarters, the jurisdiction in which the two merged firms are incorporated and relatively matters have an important effect are the utmost of importance in making the merging work (Philip T. Ruegger of Simpson Thacher & Bartlett, 1999).
In this kind of problem that M&A usually encounters, it is important for organizations to establish a good relationship making trust as the base. The trust model in connection with M&A are defined as takeover friendliness, equilibrium in terms of power and or authority, connected firm performance, similarities within culture and positive interaction (Günter K. Stahl and Sim B. Sitkin, 2004).
It is explained that the main factor which destroys the form of hostility in M&A is the unwanted takeover attempt. This kind of manner occurs when a certain company acquires other firm in the sense that the takeover is against the will (Günter K. Stahl and Sim B. Sitkin, 2004).
The company who purchases often seeks to have the authority over the company purchased instead of executing an interralational mode of integration.
According to researches made for the M&A, this kind of tactic causes extreme conflict with regards to integrating the obtained company (Günter K. Stahl and Sim B. Sitkin, 2004).
Comparing the friendly tactic on taking over a certain company, the negative acquisition explains that the merger or the organization who seeks to acquire the company tends to change the management so as to replace it and impose a harsh control over the acquired firm (Günter K. Stahl and Sim B. Sitkin, 2004).
Inequality in terms of power when it comes to firms acquired may lead to distrust. The implied power difference between two different organizations intensifies the smaller organizations views in the aspect of inferiority and superiority (Günter K. Stahl and Sim B. Sitkin, 2004).
This may cause the smaller firm to lose its existing trust on the larger firm regarding the acquirer’s future performances (Günter K. Stahl and Sim B. Sitkin, 2004).
Relative Target Firm Performance
This explains that when a low-performance leveled firm is acquired by other firm which has a high level performance, the acquirer firm’s employees would think of it as an opportunity for better job contentment and higher prospect for increased compensation and clearer chance for promotion (Günter K. Stahl and Sim B. Sitkin, 2004).
In the contrary the acquired firm will be threatened as to being dominated. The tendency is that after being acquired by a more stable firm, the executives of the acquired firm will feel inferior to those who belonged to the organizations who acquired their company (Günter K. Stahl and Sim B. Sitkin, 2004).
Thus, this negative approach of the acquired firm’s employees depends on the hierarchal level imposed in the organization (Günter K. Stahl and Sim B. Sitkin, 2004).
As explained on the factors that affect the success and failure of M&A, culture hindrance can affect much to organizations, companies, and or firms involved in the merging.
Cultural differences in its utmost hold the possible difficulties, risk in connection to cross-cultural interaction which elevates through the increase of cultural differences between certain individuals or groups (Günter K. Stahl and Sim B. Sitkin, 2004).
In addition to this, cross-border acquisition encounters difficulties because they need to go through double acculturation where as they will need to consider not only the different corporate culture but also the different national culture (Günter K. Stahl and Sim B. Sitkin, 2004).
As a hypothesis to this explanation, culture barriers and other aspects are considered as a part of the factor that causes distrust and hostility between certain organizations and or firms who seek to merge or acquire other firms (Günter K. Stahl and Sim B. Sitkin, 2004).
This explains that trust can be obtained by a certain firm or organization if and only if they already imposed a good history of performance with the same firm who acquired them (Günter K. Stahl and Sim B. Sitkin, 2004).
This explains how trust is gained through repeated interaction between two certain firms which merged. In addition, it is stated as a fact that trust is build through attainment of the acquirer’s said expectations (Günter K. Stahl and Sim B. Sitkin, 2004).
In the contrary, trust is built when the two merged companies or firms already made their performance. Another is if and only if their transaction both satisfied each other and or performed well as to acquiring success through their transaction (Günter K. Stahl and Sim B. Sitkin, 2004).
It is explained that risk behavior is seen when a certain individual or organization is under the doubt of their decision-making (DR. MICHAEL P. MCGRATH, 2007).
This behavior result’s the organization to come into more than two decisions which the first or the rest of the decisions may be better (DR. MICHAEL P. MCGRATH, 2007).
It is said to be the risk behavior in which a certain individual tends not to consider nor try risks. These individuals seek to avoid every risk which is possible (DR. MICHAEL P. MCGRATH, 2007).
There are some factors that risk propensity considers, these are achievement orientation, position of the manager or managerial position, gender, personal experiences in terms of performance, and cultural history (DR. MICHAEL P. MCGRATH, 2007).
Decision making before getting involved in M&A
It is really important for a certain leader to be well informed about matters beyond money before engaging one’s firm into merger and acquisitions (acquisitions, 2007).
It is essential to know that in order to be successful in M&A, the leaders should also know about the background and or cycle of the M&A(acquisitions, 2007).
This process comes from pre-deal tactics till the post-deal process. In order to come out with a worthy decision in getting involved with the M&A, there are principles in which we could learn and consider before making the decision (acquisitions, 2007).
Effective way to create your strategy
In order to be successful in merger and acquisition, a certain organization must create its own strategy (Vistage International, 2007).
- Identifying goals
- One must also consider other alternatives
- Construct or establish certain parameters for the incoming deal
- Construct an acquisition criteria page
(Vistage International, 2007)
These are the things to consider before engaging a certain firm to merger and acquisition.
In these types of dealing in business, one must know the acquisition target’s background to lessen the risk of eventually failing after acquiring or merging another firm.
In this field of business, people risk a large amount of money in order to merge or acquire another company to expand their performance so as to their benefits.
M&A in Share Exchange
The mergers and acquisitions cycles that consider the use of share-exchanges as the remittance were said to be basically of two different types (Michael Marth, 2004).
The first type discusses the shares of those companies who acquire where given or issued to the shareholders of the certain company or firm target (Michael Marth, 2004).
The second type of remittance involves another company established in the chosen country and the distribution of exchangeable shares (Michael Marth, 2004).
The data of the merger and acquisitions are being recorded at the date of closing on the market value (Michael Marth, 2004).
The counts of the mergers and acquisition cycles are based on the counts of those companies which are directly acquired hence they do not include those that might also be a part of the target firm’s assets and or liabilities (Michael Marth, 2004).
In this study, I figured out that it is not really easy to merge and or acquire a certain firm or company even if the financial background of that company is said to be stable.
In order to make a successful mergers and acquisitions, one must consider a very important factor namely culture.
These are the things to consider before making a decision for a successful mergers and acquisitions: culture, risk behavior, and of course the location to which the company will be established.
Mergers and acquisitions affects decision making in business as to whether innovate such firm or company or stand out being independent.
It could also affect the strategy making in order to develop and elevate the performance of certain business transactions so as to its plans and strategies.
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BRAKMAN, G., VAN MARREWIJK (2005) CROSS-BORDER MERGERS AND ACQUISITIONS: ON REVEALED COMPARATIVE ADVANTAGE AND MERGER WAVES.
- MICHAEL P. MCGRATH, B., MBA, MIEI, DBA (2007) Group Behavior in Unfamiliar Problem domain.
GÜNTER K. STAHL, I. & SIM B. SITKIN, D. U. A. D. C. E. (2004) Trust in Mergers and Acquisitions.
KIRSTEN, F. (2007) the effect of culture on mergers
MICHAEL MARTH (2004) Cross-border acquisitions: A Canadian perspective.
PHILIP T. RUEGGER OF SIMPSON THACHER & BARTLETT, L. (1999) Structuring International Acquisition Transactions Part I
QUICKMBA (2007) Mergers and Acquisitions.
VISTAGE INTERNATIONAL, I. (2007) Best Practices: Mergers and Acquisitions.