Category: Acquisition

Acquisitions and mergers in the automotive industry

Increased globalization of the world economy has led to the merging of companies in related industries in recent years. Various reasons lead companies operating in disparate locations and markets to join into a single operation. Price (1987, and in Fitzgibbon & Seeger 2000) describes a merger simply as the “formal joining or combining of two corporations or business.” The merging of entities that have previously operated separately is motivated by several factors, but three prime reasons are noted for the increasing spate of mergers and acquisitions in the recent past.

One of the prime reasons for the merging of separate operations into a single business entity is synergy (Fitzigibbon & Seeger 2000). The companies coming together appreciate that opportunities exist for much more efficient production that each individual is unable to achieve. Having been in operation for several years, such companies notice areas in which their operations could be complemented by the companies with which they merge.

Another reason that makes companies merge is the desire to increase competitiveness (Fitzigibbon & Seeger 2000). In a continuously globalizing economy, companies with a global presence have the ability to compete more effectively than those whose operations are limited to a single company or limited locations. A larger corporation is able to take advantage of increased economies of scale, which the smaller corporation cannot. Ultimately, the merging companies aim to increase shareholder value (Fitzigibbon & Seeger 2000). When greater competitiveness is achieved as a result of the merger, the companies stock prices increase, thereby benefiting the shareholder.

The way a merger is carried out will depend on the size and financial muscle of the companies involved. Two companies of equal size and strength could merge in an operation that recognizes the equality of the two different organizations as well as each company’s strengths and weaknesses. In such a situation, the merging companies will join together to form a new organization as equals. However, mergers sometimes are not a matter of friendly mutual agreement and sometimes actually involve a hostile takeover.

The Daimler Chrysler AG Merger

In 1999, the Daimler Benz corporation of Germany merged with the Chrysler Corporation (Fitzigibbon & Seeger 2000). In merging, the two companies aimed to create a company with a global presence and to bring the strengths that each company had to the global automobiles market. At first sight, the companies appeared to be equal partners in the merger. Fitzigibbon and Seeger (2000) note that the companies at the time of the merger were almost equal in size.

In addition, the companies appeared ideal for a merger because each had specific strengths which could be complemented by the other. Chrysler, founded and having its main operations in the US, was a company that “emphasized innovation and flexibility” while its counterpart, Daimler Benz, was a company “characterized by structured, hierarchical management and German engineering excellence” (Fitzigibbon & Seeger 2000).

These apparent equal partners were thus ideal for a mutually beneficial merger. In addition, the two companies were among the market leaders in their areas of specialization, and their coming together was supposed to create a truly global company. Owing to the apparent equivalence of the two companies, their merger was vertical and friendly. A brief history of the two companies should help put the merger in perspective.

Daimler Benz

Daimler Benz is a company with a long and prestigious history. Its founders, Gottlieb Daimler and Carl Benz, are acknowledged as the creators of the automobile (“Corporate profile”). They accomplished this invention in 1886 and throughout the existence of the company Daimler Benz has been known as a market leader. The excellence associated with German engineering excellence probably has its roots in the Mercedes-Benz, the car that defines class and is “the world’s most valuable automobile brand” (“Corporate profile”).

Daimler Benz is a market leader today and has a wide range of products. Apart from the Mercedes-Benz cars, the company also produces Mercedes-Benz vans and Daimler Trucks and Buses. Moreover, the company offers financial services under its Daimler Financial Services. Daimler Financial Services provides funds for vehicle financing. In addition, fleet management and insurance services are offered by the company under Daimler Financial services. The trucks and buses from Daimler Benz are among the world’s leading in the range of medium and heavy-duty category. Starting in Germany, Daimler Benz today has a global presence and has plants in Europe, North and Central America, Asia, South America, and Africa (“Company overview”).

The Chrysler corporation

The current global crisis has brought the Chrysler corporation to the forefront, and the company is in the news for mainly the wrong reasons. Along with the other automobile manufacturers in the US, Chrysler is facing such hard economic times that its very survival is at risk. Yet, the Chrysler Corporation is a company with a long history. The company was started in 1925 by Walter P. Chrysler (“Chrysler history”).

The founder was a famous machinist and in three short years had expanded the company by acquiring Dodge and creating two additional divisions, DeSoto and Plymouth. From small beginnings, the company became famous for embracing innovation and by the 1930s had developed a Chrysler model that used the revolutionary Airflow design, a motor vehicle that attempted to use the available knowledge of aerodynamics. These attempts at application of advanced engineering did not however bear fruit, but the company was able to withstand many pressures, including the lean times that were brought on by the depression.

Survival during the depression years is credited to the company’s abilities to successfully market the Dodge and Plymouths vehicles. These vehicles were reasonably priced, making them appeal to the public (“Chrysler history”).

The company enjoyed enormous growth in the period after WWII and only faced a major crisis in the 1970s when the world oil crisis destabilized many in the automobile industry. Troubles for Chrysler during this period were deep, and it had to seek federal support to save it from bankruptcy. Government support, amounting to $1.5 billion, saved the company from bankruptcy, and henceforth the company enjoyed massive growth. By the time of the merger discussions with Daimler Benz, the company was in a strong position in the US market and had developed global markets, thus making the merging of the two companies to form DaimlerChrysler seem like a union of equal partners (“Chrysler history”).

Stakeholders in the merger

The merger of Daimler Benz and Chrysler was hailed as “a merger of equals” (“Chrysler history”). In fact, Fitzigibbon and Seeger (2000) note that the merger took much publicizing with Chrysler at the forefront trying all it could to guarantee its loyal workers that what the two companies were getting into was a marriage, a marriage of equals. The word marriage was carefully chosen by the management of Chrysler, who had discovered that a number of stakeholders were uncomfortable with the merger and therefore needed to be reassured.

In the merger process, Chrysler’s employees were major stakeholders because of a unique culture that Fitzigibbon and Seeger (2000) note had developed at the Chrysler Corporation. At Chrysler, employees had played a critical role in saving the company from bankruptcy in the 1980s. While the company was seeking federal support to save it from imminent bankruptcy, the employees accepted wage cuts and accepted to forego benefits that they were entitled to in a bid to keep the company afloat. This act of sacrifice made the employees major stakeholders who needed to be satisfied when an issue as big as a merger came up for discussion.

In addition to employees, the dealers and customers that the company dealt with were another important group of stakeholders that needed to be satisfied. The company had established Chrysler as a uniquely American car so that, as part of its advertising and marketing campaign, it created the impression that purchasing a Chrysler was in itself an act of patriotism (Fitzigibbon & Seeger 2000).

As part of the attempt at playing the patriotism card, Chrysler had been calling for a limitation on the number of Japanese vehicles making it to the US market. Moreover, the company, to be truly representative of the American people, tried to supply cars to all sectors of the population. Thus, it had cars for the military (the Jeeps) and cars for the middle and lower classes of the population. The dealers and customers, while appreciating the necessity of the merger and seeing the possibility of new opportunities coming up were generally apprehensive and needed reassuring (Fitzigibbon & Seeger 2000).

For the customers, the German connection presented a particularly vexing situation for Chrysler. While the latter was supposed to be representative of American patriotism, Daimler Benz was known to have been a supplier of military equipment to Nazi Germany. This was likely to antagonize not only patriotic Americans but the huge numbers of Jews among the American population (Fitzigibbon & Seeger 2000).

Concerns of other stakeholders

While Chrysler was giving assurances on the viability of the merger to the stakeholders in the US, concerns were being raised by stakeholders in Germany. Part of the campaign by the CEO of Chrysler, Robert J Eaton was to reassure the employees that the merger would not lead to job losses. To convince a largely skeptical workforce, the CEO teamed up with the CEO of Daimler Benz, Jurgen Schrempp to address the press on the compatibility of the two companies.

This compatibility was emphasized by alluding to the complementary roles that the two companies could play. The two companies were shown to be ideal for the merger because Mercedes Benz, from its beginnings had specialized in the production of automobiles for the “high and luxury range market” while Chrysler had mainly concentrated on the medium-range vehicle and the companies could therefore be considered to be rationalizing their operations (“Industrial relations aspects of the Daimler-Chrysler merger 1998).

With the CEOs guaranteeing that no job losses would occur as a result of the merger, the two main trade unions that were affected, IG Metall of Germany and the United States Auto Workers Union supported the merger. While the umbrella trade unions expressed support for the merger, some individual unions were more cautious. Caution was expressed by IG Metall’s Baden-Wurtemberg regional office, which felt that job losses were inevitable.

Inside Daimler Benz itself, the council for the protection of workers right sought to obtain a written assurance from the company that the merger would not adversely affect the workers. To achieve this, the company sought to have the company extend the workers’ job guarantee “from the end of 2000 to the end of 2002” (“Industrial relations aspects of the Daimler- Chrysler merger 1998). The requested guarantee was, however, not given. Instead, assurances were given that the outsourcing of services and mergers would not in any way affect the employability of those already in employment.

The terms of the merger

From the outset, the merger between Daimler Benz and Chrysler was presented as a friendly union of two equal partners. As part of the process of preparing the various stakeholders for the merger, various attempts were made in the press and public forums to drum support for the merger and the term “marriage of equals” was specifically coined to clear doubts in the minds of many stakeholders who remained skeptical (Fitzigibbon & Seeger 2000).

When the financial details of the merger were revealed, however, there were immediate doubts about the equality in the marriage. For one, it would have been expected, since the parties were equal partners, that a Chrysler share would have been valued the same as a Daimler Benz share. However, initial financial details showed that “the exchange ratio was set at.547 Daimler Chrysler stock for each Chrysler share” (Fitzigibbon & Seeger 2000) thereby effectively devaluing the shares of the Chrysler shareholders.

While the merger was supposed to make both companies use their different strengths to complement each other, Chrysler had emphasized that the two companies would “retain their individual brands and market focus” so that the merger then became a source of strength and not a dilution of the effectiveness of either party (Fitzigibbon & Seeger 2000). As part of the terms of the merger, it was agreed that the company, in appreciation of its American and German ownership, would be run by two chairmen – one would be located in Michigan, USA, and the other one in Stuttgart, Germany (Fitzigibbon & Seeger 2000).

Moreover, these chairmen would have the privilege of shuttling between the two cities while the “Board of Management meetings would be conducted on a bi-continental basis and there would be a blending of management into this new global entity DaimlerChrysler” (Fitzigibbon & Seeger 2000).

The merger process was done in a short period and was completed in May 1998 (Fitzgibbon & Seeger).

How successful was the merger

The conditions and the reasons given for the merger of Daimler Benz and Chrysler were ideal and presented the rosy picture of a future of massive growth from a company that was combining the strengths of two companies that already had a global presence. Things, however, turned out quite differently.

One of the main reasons that made Daimler Benz get attracted to Chrysler was the latter’s profitability (Zalubowski 2009). By the time of the merger, Chrysler was among the three main automobile manufacturers in the US and seemed set on the route of growth that would be improved by merging with Daimler Benz. Chrysler’s profitability, however, took a bashing in the years following the merger, and it had to cede the number three position to Toyota (Zalubowski 2009). Where profits had been the norm, losses set in, and the climax was the 2006 loss of $1.5 billion which made the company announce that it was considering selling Chrysler.

In fact, Fitzigibbon and Seeger (2000) show that decline for the new company started almost immediately after the merger. The sales figure for Chrysler, which must have played a significant role in attracting Daimler Benz had been increasing and in October 1998 had reached 226,197 units. This was an increase of twenty percent over the sales in the same period in 1997 (Fitzgibbon & Seeger).

Moreover, the sales figure constituted a substantial proportion of the American automobile market – by this time Chrysler had slightly over sixteen percent of the market share. With the merger, the sales went down by four percent in the following year while Chrysler’s market share had fallen to fifteen percent. The deterioration continued so that by 2000 Chrysler’s market share had fallen to thirteen percent (Fitzigibbon & Seeger 2000). Perhaps to indicate the future that this merger held, DaimlerChrysler, responding to the losses of the initial years, undertook a major restructuring exercise that led to the loss of 26,000 jobs.

That the merger was not working was also almost immediately evident in the contribution of Chrysler to the company’s operating profit. When the companies merged in 1998, Chrysler contribution to DaimlerChrysler revenue was 48 percent. This, however, fell to 45 percent the following year. By 2000, losses in dollar terms had reached $1.3 billion. Most of these losses were being attributed to the reduced demand for Chrysler vehicles in the American market, thereby further complicating matters for the Chrysler group (Fitzigibbon & Seeger 2000).

In addition to reduced sales and profitability, the DaimlerChrysler merger led to a fall in the values of the shares of the new company. Fitzigibbon and Seeger (2000) note that by the time of the merger in 1998, Chrysler’s shares traded at $70 per share. Immediately after the merger, the shares rose sharply and had reached $100 in 1999. However, by 2000, the share prices had nosedived to $53 and further fell to $48 in 2001. For the shareholder, this means that the value of the shares had fallen by over 35 percent.

Why the merger failed

Various reasons have been given for the failure of a merger that was supposed to create a company that would not be surpassed by any other in the automobile industry. While the CEOs of the two companies have conceded that observance of due diligence would have saved the company, observers in the automobile industry are of the opinion that the merger was doomed to fail right from the start.

Krebs (2007) is of the opinion that the merger “was built on sand, not on solid rock foundation”. According to Krebs (2007), the merging companies dealt with one another dishonestly. While the union was variously described as a marriage and partnership of equals, observers maintain that Daimler Benz actually took over Chrysler so that the latter was never treated as an equal partner and that the former’s only intention was to dominate Chrysler and probably remove it from the market.

While that is the position held amongst observers in the American automobile market, Dudenhoffer (2007) agrees in part but notes that the two companies merged only in name but continued to operate on separate platforms. This presented a huge challenge and was fertile ground for failure. When the two companies failed to use the platform of unity that the merger brought to them, it effectively means that the companies could not make use of the economies of scale that merging should have provided.

As an indication that the companies only merged in name but not in practice, Dudenhoffer (2007) observes that the companies failed to use “common parts and components” so that where Chrysler was faced with serious problems it could not rely on support from other “parts of the company”. Dudenhoffer (2007) further notes that the two companies continued to operate as separate entities because of the difference in the types of automobiles that they were producing and failed to appreciate that it would be possible to utilize the same platform to service both the divisions handling premium cars and those handling production of higher-volume productions.

He gives the example of Toyota, which uses the same platform to produce the premium model, Lexus and other brands that are for the mass market. The same has been done by VW and Porsche, thereby making the manufacturing divisions play complementary roles. At DaimlerChrysler, there developed arguments from the merged partners. Dudenhoffer (2007) highlights the differences by noting that Daimler Benz declined to use parts from Chrysler claiming that such use would compromise the quality of the vehicles they produced.

Chrysler, on its part, refused to use the parts from Mercedes-Benz, claiming that such use would make the car too expensive and therefore unaffordable. Further complicating the situation for the merger was the continued expansion of cars that presented better alternatives to what DaimlerChrysler was offering. Like the other US companies, DaimlerChrysler continued to produce vehicles that were gas guzzlers while companies like Toyota and Nissan were producing cars that were more economical to run. Dudenhoffer (2007), while acknowledging that this is a problem within the whole of the US automobile industry, notes that the motor vehicle manufacturers have tended to concentrate on SUVs and pick-ups when the market forces have been pointing to the demand for fuel-efficient cars.

Apart from the dishonesty that has been seen as afflicting the merger from its very beginning, analysts have also noted some cultural differences in the running of the two companies that made the running of the merged company the source of conflicts. While Dudenhoffer (2007) observes that the Germans and Americans are proud people who would like to run the show without reference to one another, another angle is introduced by the management styles that were employed in the two companies. Daimler-Benz is a company that was run through “methodical decision-making” (“Daimler, Chrysler and the failed merger 2008).

Chrysler, on the other hand, as demonstrated by the management’s efforts to sell the idea of the merger to not only the shareholders but to the employees as well, is a company that was run much more openly. As a company that took pride in innovation, Chrysler encouraged the participation of all the employees in the decision-making process. This openness and creativity was not the desired way of doing things at Daimler Benz and was bound to cause problems when the latter attempted to run its operations the way it ran the German ones.

This difference in the administrative was bound to show itself in the form of resentment by the American workforce. In effect, this would hinder the “realization of synergies” and further prevent the merged company from realizing its objectives (“Daimler-Chrysler and the failed merger 2008). The inability of the merged company to realize synergies is noted by Fitzigibbon and Seeger (2000), who note a trend that developed soon after the merger that was bound to cause problems for the merger.

As a result of the merger, the PR department at Chrysler was made almost redundant. While the union was supposed to be a marriage of equal partners, the PR department at Chrysler soon learnt that all the company’s communications would be cleared through Germany.

Managers at Chrysler were frustrated by this development with the result that a number of senior officials at Chrysler, including those that had participated in the discussions that preceded the merger, actually quit their jobs. The departure of those previously in managerial positions not only demoralized those that were left behind but also caused the emergence of a situation in which management decisions were no longer made in a coherent manner, further denting the image of the new company and curtailing its efficacy (Fitzigibbon & Seeger 2000).

Further doubts about the ability of the merger to deliver were expressed in the months following the merger when it emerged that Chrysler was being treated as an entity separate from the merged group. This created the impression that DaimlerChrysler was one thing and Chrysler a separate entity in the organization and was being treated as a separate entity so that the losses that would be incurred from the market failure of Chrysler would be treated separately from losses from the rest of the group.

The creation of the DaimlerChrysler corporation had one consequence that was to contribute substantially to the failure of the merger. Since the company was run from both the US and Germany, it was not included in the Dow Jones Industrial Average, and with the losses that it suffered a few years after inception was no longer among the top US companies. This led to a fall in the share value of the company relative to the values of the competition (Fitzigibbon & Seeger 2000).

Conclusion

DaimlerChrysler was created through a friendly vertical integration process. To all intents and purposes, two equal partners seemed to be coming together to create a company that would be the undisputed market leader in the automotive industry.

While good intentions seem to have driven this merger, there was a lack of complete honesty in the way the merger was handled. While Chrysler went to great lengths to assure its various stakeholders that all was well, it is also evident that a number of issues were left unaddressed, and these created the recipe for future problems. The merger was bringing together two companies that had different cultural and operational philosophies as well as different histories. While officials of the merging companies emphasized the strengths of their separate companies, they failed to recognize that the merger presented serious challenges that needed to be addressed. As a result, the strengths of the merger were over-emphasized while the weaknesses were largely ignored.

Part of the merger campaign mounted by Daimler Benz and Chrysler was the creation of metaphors that were supposed to aid in passing the messages of the merger to the shareholders. Fitzigibbon and Seeger (2000) note that the metaphors that were used for this campaign were not clearly thought out so that when unexpected issues arose, the metaphors were found to be unable to address these.

Terms like a marriage of equals failed to make sense when it emerged that Daimler Benz was having the greater say in the management of the merged organization. In the end, what was supposed to be the biggest automobile association in the world failed to develop to the levels envisioned mainly because of the confusion that characterized it in the formative stages. As noted by Fitzigibbon and Seeger (2000), the merged company ended up being a “confusion of American and German values and identities.

References

“Chrysler history” (2009). Chrysler. Web.

“Chrysler history” (2009). Edmunds. Web.

“Corporate profile” (2009). Daimler. Web.

“Daimler, Chrysler and the failed merger” (2008). Case study home. Web.

“Daimler-Chrysler: Why the marriage failed”. Edmunds autoobserver. Web.

Dudenhoffer, F (2007). DaimlerChrysler: A failed experiment. Auto industry. Web.

Fitzigibbon, J.E & Seeger, M.W. (2000). Audiences and metaphors of globalization in the Daimler Chrysler ag merger. Communication studies 53(1), 40+

“Industrial relations aspects of the Daimler-Chrysler merger” (1998). Caroline. Web.

Krebs, M. (2009). Daimler-Chrysler divorce final with name change. Edmund AutoObserver. Web.

Woods, L. (2009). How Daimler, Chrysler merger failed. All about cars. Web.

Zalubowski, D. (2009). Daimler AG. The new york times. Web.

BHP Billiton Making Strategically Important Decisions in Critical Times

Summary of the Case

BHP Billiton is a resource and mining company that is currently in the throes of having gone back on an acquisition deal owing to the slump in the market.

Market condition indicate that BHP Billiton’s decision to back out of the take over of Rio Tinto was a good decision as if it had followed through the company would have to sell some parts of the merged business which might not have been beneficial to the working of the company. After BHP’s decision to pull out of the contract and pay the break up fees rather than settle for the acquisition the shares of Rio Tinto fell by 37% which indicates that the news of the acquisition was buoying up the share price of Rio Tinto and that without BHP’s impending takeover, the company would have been worth much less.

The company had arranged for the necessary financing arrangements but it considered the fact that the investors would be worried in an economic climate where mergers and acquisitions were falling, in fact had fallen by 27% over last year and that the value of cancelled deals was nearing the amount of merger and acquisition deals made.

Moreover, further business deals are likely to be backed out of as BHP realizes the fallacy of investing in a private-equity firm where costs can increase and which wont be affordable in the near term.

Statement of the Problem

The problem with the situation lies in the fact that the business clime is not suitable for an acquisition even though a private-equity firm such as Rio Tinto might be in favor of such a deal.

The climate indicates that even though the acquisition might be at a good price, selling of parts of the business to comply with anti-trust issues might pose a problem as there might not be enough buyers for the business.

Proposing a Solution

The best solution in this case is to either delay or cancel the acquisition arrangements as even though there are positive speculations for the merger and acquisition business to pick up, the near future might be in the doldrums if such a deal is followed through with.

Learning Applications

In the case of BHP, there are several lessons in strategic business management that can be learnt. Firstly, even though the company made a good decision to back out of its deal, it would have avoided the transaction and the paying of break up fees altogether if the management had taken the economic climate and its implications into account in the first place. Although the deal didn’t follow through, the company could have avoided bad press and would have saved on costs at the same time.

Secondly, even though mergers and acquisitions become easier in times of recession when private firms are more open to such deals, the company itself should take into consideration how its operations, its stakeholders and its financial position will be effected, which was done in this case to the detriment of the deal.

Last, but not the least, the company took into account the fact that even though it had a suitable financing arrangement in the short term it would greatly hamper its operations in the long run if the recessionary period continued and therefore, this is a lesson that every business must learn that short term gains or short term success should be evaluated in a great measure to see that it does not negatively impact the future of the company.

Due Diligence: A Case For Hutch-Essar In Managing Takeover Bids

Summary of the Case

Hutch-Essar is a wireless telecommunications company based in India which was formed after the acquisition of Hutch and Essar. Hutch has a 67 percent stake in the company whereas; Essar is a 33% stakeholder. Currently the company’s stake is up for sale and there are many contenders for this stake sale. Among these are Vodafone, which is in the phase of carrying out a Due Dillgence check in the company. Other companies contending for a stake in the company include RCom, Reliance, Hinduja Group and Maxis along with Essar itself.

Hinduja is the latest to join the bandwagon as it declared its interest in the company recently.

Statement of the Problem

The problem with the deal here is that there is controversy regarding Essar’s right of refusal. This right allows Essar to refuse a stake sell out to companies that it does not consider appropriate for the merger or acquisition. The controversy does not end here. There is more debate on the fact that whether the right to refusal for Essar is only restricted to Indian buyers or if it also exists in case of domestic as well as international buyers.

Moreover another problem that is highlighted here is that Essar itself is interested in the buyout and if such a condition of right of refusal exists, it could complicate matters further.

Another problem that comes to light here is the fact that there are reports that a company which was in the running for the stake sale was not allowed access to the books of the company which in fact is a negative action as the company will not be able to get the best possible valuation if all contenders are not allowed their evaluations.

Proposing a Solution

The solution here revolves around a simple notion. Foremost, the company’s management should put an end to the market speculations and instead focus on spreading the correct story in the market as this will not only affect the stock valuations but will also be able to fetch the company a better price.

Secondly the issue of the right if refusal should be solved within the company and the issue be dealt with in light of the legalities involved. However it would be best to keep matter out of the court as not only would it bring bad publicity but also put the company and the deal in precarious situation delaying the process rather than expediting or helping matters in anyway.

Further the company should grant access to all contenders so that a quality valuation comes into light and the company can take advantage of the best deal.

Learning Applications

The learning points here are that a business in face of several controversies best deals with the situation when it lets investors know its standpoint and where there is transparency in the processes in issues involved. In case of Hutch Essar, speculators and stakeholders are not sure what the rules of the game are and of a court in involved in solving matters a lot of time, effort and money is wasted in arguing over finer points that should have been made known in the first place.

International Mergers and Acquisitions: BA and Qantas Fail to Negotiate a Global Merger

Summary of the Case

British Airlines and Qantas were negotiating a merger deal between the two airlines. British Airways is Britain’s national flag carrier where Qantas in an Australian airline. The merger talks failed, however to reach a deal as Australian law forbid foreign ownership of airlines and dictate that at least 51 percent of the airlines should be Australian owned while this condition is not acceptable to the Britons.

Furthermore, British airways has come under some trouble due to its pension pays and as economic turmoil deepens it finds itself defenseless against rising fuel and oil prices which it needs to hedge against via such mergers.

Even though the talks between BA and Qantas have not worked out both airlines are looking to other potential, global partnerships in order to have a stringer company to face the recessionary period and to survive in the game where only the fittest and the largest can survive.

Statement of the Problem

The problem indicated in the case is that the airlines both need to have a merger or an acquisition with another airline in place in order o grow stronger, face more economies of scale and exert more power over suppliers of oil in order to reduce overall costs. However in global transactions and contracts the government of the country has a lot of stake in a company especially one as vital as one in the airlines industry. Therefore the regulations can be a hindrance in such business negotiations where mutual agreement, understanding and clarity of the contract terms on both sides is a must. What happened in this case was a classic case of the aforementioned problem in international business, the government laws did not condone such a merger.

Proposing a Solution

The solution to this problem can be the BA agrees to the terms of Qantas Airlines as if it needs to work efficiently in Australia it can gain an added advantage by being the airlines partner as even if it tries to merge with another Australian airline for the Australia route, BA will face the same problem. Moreover BA needs to solve its pension liabilities issue before going into further talks with any other potential partner because the problem leave BA with a negotiable position. Another solution to the problem, as already mentioned in the case is that BA look for other global partners with the point of view that the new acquisition or merger doe not over burden its current resources and capabilities as international management of employees will also be a tough management issue.

Learning Applications

The learning application of this case is that companies should look into having partners in countries that have compatible laws or it should lobby its case first in the government in order to rid of any unwanted government regulations that might be detrimental to its operations. Moreover in case of international mergers it is not merely the companies themselves but the countries’ governments that too are at stake and it bodes well for a company to take any regulations that the country has into account before embarking into negotiations with any company. Even in this case the talks and then the refusal could have been avoided if BA was already aware of this clause and would have taken this into account before making the decision to choose Qantas and waste effort, time and money in talks that could have entirely been avoided.

Merger and Acquisition Failure: Main Factors behind M&A setbacks

Summary of the Case

The case highlights three important variables that lie behind many failures f M&A negotiations.

The three factors that are the major cause of these issues are dishonesty, reliance on owners and failure for systems to integrate.

With regards to dishonesty, many M&A Agreements fail when small businesses that are to be merged with larger ones are dishonest in reporting their revenues and costs. In such a case, bug companies that have proper standards and regulations for all processes feel uncomfortable dealing with businesses that have a dishonest accounting record or lie in reporting revenues to the federal agency leading t tax evasion issues that big companies want to avoid at all costs. Not only does dishonesty lead to lack of goodwill, it also creates problems for the business when the deal doesn’t work out.

The second factor is the reliance of small businesses on their owners in all walks of its operations. This is mainly because of poor succession planning by entrepreneurs who like to control all aspects of their business themselves. Thus companies that are interested in buying such ventures give it a lower evaluation as successors and employees have to be trained and re-trained in order to comply with big company’s rules and regulations and in order for delegation to be more effective.

The last factor depends heavily on the fact that many times businesses do not pre plan the deal and are ambiguous about operational issues that can have a huge bearing on the combined company’s future. This in turn leads to an integration failure where either there is too much change involved on both sides so that the core focus is lost or there is a failure for the merged companies to connect at levels that are necessary for operational success.

Statement of the Problem

The problems that lead to a break down of talks between a small and a large business trying to acquire the smaller one are dishonesty, failure of succession planning and delegation of work as well as a failure of systems integration.

Proposing a Solution

The solution lies in the problems themselves as the remedy involves more transparency in accounting and reporting financial position, avoidance of tax evasion, due diligence and through preplanning and assessment of the environment along with factors that can have a bearing on the future of the two firms and the M&A deals as well as succession planning and more delegation of work to capable people who can then act as leaders to take the business forward viably.

Learning Applications

The applications of this case are apparent where small entrepreneurs as well as larger firms need to study the factors proposed as variables that play a big role in the failure of M&A agreements.

All impending M&A deals should be made with these factors in mind.

Outbid Versus Long Term Partnership: Hyundai Wins Against Ford In Gaining KIA

Summary of the Case

KIA has been a household name in automobiles in South Asia for a very long time but it has be in the last couple of decades that it has gained a foothold in Western Markets. The company entered into a partnership with Ford Motors in the late 80’and built vehicle based on Mazda models for domestic and international sale. Though the cars had different names in different markets they were essentially produced by KIA in the same manner and marketed by Ford in the Western countries and by KIA in South Korea. It was in the early 90’s that KIA began exporting and selling vehicles under its own brand name in America and gained a strong foothold in the American market due to some of its car models.

It expanded in America after establishing itself thoroughly in the state of Oregon and then gradually spreading to the rest of the states. With regards to Europe the company began selling vehicle in the region in the late 1990’s and gained a sizeable market share there with manufacturing focused in Germany.

However in the year 1997, when Asia was hit by a financial crisis the company had to declare bankruptcy and was then acquired by its rival company Hyundai. This was considered to be a surprising gesture as Ford had been the company’s partner for the longest period of time.

Statement of the Problem

The problem here is that despite of Ford being a long term partner for KIA, it was overlooked as the acquiring company as Hyundai acquired KIA to reap the benefits of a strongly established brand in the western world. This was because Hyundai was able to outbid Ford as the buyer of the company. This indicates that long term relationships hold little value when a acquiring company can outbid he long term partner by valuing the company bought higher than its contender in stake buying.

Proposing a Solution

The solution here is very difficult to practice in real life as it is impossible to know unless there is dishonesty involved about the bid price of a company. Therefore companies have to rely on their experts to evaluate the company not only along the lines of its current worth but also along the lines of its potential benefits. Hyundai apparently weighted the future potential of the company higher and being an Asian brand Hyundai would probably have seen the advantage in investing in a brand that was well established in the western world.

Learning Applications

Businesses hence should learn that having a long term relationship with a company does not give it the right to demand preferential treatment. Rather the relationship should be taken as an opportunity to be able to realize the potential of a partner company and to outbid other contenders if the company seems to be able to give benefits back in return.

Hence business should learn that managing an M&A is not simply about the price but it is also about a through evaluation of the operating environment as well as the internal and external factors that may or may not be under the firm’s control but can be hedged against or avoided, whatever the case may be.

References

BHP Billiton. BHP Billiton. 2009. Web.

British Aiways. British Aiways. 2009. Web.

KIA Motors. KIA Motors. 2009. Web.

Qantas. Qantas Homepage. 2009. Web.

Vodafone India. Vodafone India. 2009. Web.

Introduction

In today’s competitive global business environment, in order to survive companies are required to devise ways to grow (Donald 2008.). The two companies in this case are considered equals. The involved companies in this case are regarded to be of the same size.

In principle the stocks of the two companies are usually surrendered rather than issuing. Such instances can be recalled of the case of Glaxo Welcome merging in 1999 with SmithKline Beecham that gave birth to GlaxoSmithKline.

Advantages of Acquisition

Acquisition enables to penetrate a specific market niche that could otherwise not have been penetrated due to many barriers. Acquiring encourages specialization in that a company is able to enter into other markets which could not have been penetrated before (Jarrod , 2005). Acquiring a company means acquiring its customers as well. The company expands its operations through producing a wide variety of products (Jarrod, 2005).

In acquiring another company, the acquiring company increases its economy of scale. The acquisitions may result in the reduction in the fixed costs and thus increasing the resultant profit margin.

Acquisition also leads to increased financial leverage- the power gained by a company when more financial assets are acquired of the acquiring company. Earnings per share and the overall profitability of the acquiring company are improved. The improved productivity and increased stock generates more (Jarrod, 2005).

Disadvantages of Acquisitions

Acquiring of another company may involve high financial implications. These include buying costs legal costs and other associated costs. This may cause the company to take loans which may take long to (Jarrod, 2005).

The anticipated profits of acquisition may take long to be realized. It will take the company quite some time before it penetrates the new market. (Jarrod, 2005). Acquisition may not go down well with the customers and shareholders. Acquired company may be placed under management of a new team. The new employees may not be familiar with the company’s operations. This may have negative effects on the clients.

Advantages of merging

Merging of companies is aimed at improving the financial performance of the companies in question. Merged companies enjoy the same advantages as those acquired company. Merging companies also enjoy Vertical integration. This occurs when an upstream and downstream firm merges.

Disadvantages of merging

While diversification may hedge a company against a downturn in an individual industry it fails to deliver value (Harwood, 2006). Merging may also lead to Manager’s hubris. This is manager’s overconfidence about expected synergies from merging. Merging requires empire-building.

Conclusion

Even though acquisitions are found to be advantageous to a company, there face numerous challenges, thus the need for planning that is acceptable. Merging and Acquisitions bring benefits to all stakeholders of a company by generating more profits, expanding the market share, and other benefits.

However the two are costly to operate, there is high opportunity costs involved in the short run and other drawbacks which may hinder a company from adopting involved strategies. That notwithstanding, merging and acquisitions are of great benefit to a company and managers should consider taking this as a growth strategy.

Reference

Donald, DePamphilis (2008). Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press. pp.740.

Harwood, I. A. (2006). “Confidentiality constraints within mergers and acquisitions: gaining insights through a ‘bubble’ metaphor”. British Journal of Management 17 (4): 347–359.

Jarrod M., Coulhard, M., and Lange, P. (2005). Planning for a successful merger: A lesson form an Australian case study.’ Journal of Global Business and Technology, 1(2).

Introduction

CEMEX is one of the largest companies in the world that produces a variety of building materials and cement. CEMEX is headquartered in Mexico, but the company’s production capacities are spread all over the globe. Being established in the 1900s as a small cement company, CEMEX expanded globally focusing on acquisitions as the main strategy in the 1990s-2000s (Hill and Jones c337).

During the period of 2008-2010, the company was experiencing significant financial falls and decreases in profitability associated with the acquisition of the Australian-based Rinker Group in 2007 that was followed with the reduced demand in products and debt burden (Black par. 2).

Analysis of the Company’s Strategy

CEMEX became one of the largest cement producers in the world because of focusing on acquiring different manufacturers all over the globe and adding to the assortment of produced building materials. Acquisition is discussed as the company’s main strategy, and it has particular features characteristic for the CEMEX’s specific approach.

Thus, the corporation’s leaders choose the company to acquire while focusing on such conditions as high expected returns, promising geographical presence, and obvious contribution to CEMEX’s capital structure (Hill and Jones c337).

Rinker Group was selected according to these criteria as a profitable company that helped to promote CEMEX’s position in the sphere of ready-mix products (“Rinker Target Statement” 4).

The other important factor is the development of the integration that follows the acquisition process.

After the acquisition, CEMEX experts are oriented to examining the best practices that are used in acquired companies, to standardizing the most effective approaches, and to adopting or integrating them within the corporation’s management and production process (Lessard and Reavis 6).

This approach is based on sharing resources and capabilities, and it can be discussed as effective in order to integrate the most effective strategies, to enhance the company’s development, to focus on innovation in production, to cut operational and production costs, and to increase the overall efficiency (Hill and Jones 345).

However, in relation to the Rinker Group acquisition, the standard strategy followed by CEMEX was not effective, and the corporation faced the problem of the debt burden. It is important to state that the problem was in the fact that the acquisition was rather high-risk.

Concentrating on the possibilities for the geographical expansion, CEMEX overestimated the economic advantages of the acquisition. CEMEX followed the standard procedure of acquisition without paying attention to the changing economic environments (Hill and Jones c339).

Furthermore, the overall costs of acquisition were extremely high, and risks associated with the possible failure were also high. Pre-acquisition screening was not appropriate to predict the experienced problems (Hill and Jones 372).

In this context, CEMEX became blocked in its attempts to generate and use free cash flows, to use the advantages of synergies, and to use the post-merger integration strategy effectively.

Works Cited

Black, Thomas. Cemex Wins Control of Rinker with $14.2 Billion Offer. 2007. Web.

Hill, Charles, and Gareth Jones. Strategic Management: An Integrated Approach. New York: Cengage Learning, 2012. Print.

Lessard, Donald, and Cate Reavis. CEMEX: Globalization “The CEMEX Way”. 2009. PDF file. Web.

Rinker Target Statement. 2006. PDF file. Web.

Mergers and Acquisition (M & A) refers to those corporate strategies that support the banking and finance buying, selling, and merging different companies that can financially help in aiding a company without creating a separate business entity. M & A refers to all the generic processes and linkages that comprise financial intermediation or the basic financial strategies that ultimately drive efficiency and innovation in the financial system. We can say that M & A supports the specific financial activities that form the ground root of financial sector reconfiguration, commercial banking, securities, and investment banking, insurance, and asset management. M&A activities, particularly when it comes to the financial services sector takes place within and between these areas of activity.

Intermediated Financial Flows: Financial flows are dependant upon ‘savings’ as savings are the ground root of the financial sector which are either in the form of deposits or alternative types of claims issued by commercial institutions or savings organizations that finance themselves by placing their accountability to the general public.

Intermediation: Since savings are the main tools of any financial sector, they are directly or indirectly responsible for collective investment vehicles to the purchase of securities publicly issued and sold by various public and private sector organizations in the domestic and international financial markets.

The connection between ultimate borrowers and lenders: While depending upon the surplus savings, the process then deals through various kinds of direct-sale mechanisms, such as private placements, usually involving intermediaries.

Merger – combining two companies as one and Acquisition – the takeover of one company by another has been one of the major vehicles in the transformation of a key set of economic activities that stand at the center of the national and global capital allocation and payments system (Walter, 2004, p. 201).

Effects of Merger and Acquisition

Takeovers or acquisitions where on one hand have become the dominant route through which changes in the external control of regional economic activity occur, on the other, it also provokes international competitive pressures on market share associated with the slowdown of growth in mature product markets. Therefore the need for rapid entry into new and developing markets, the desire to minimize the transaction costs of overcoming barriers to entry, and with increasing customer differentiation the need for access to local knowledge, are all likely to have contributed in varying degrees to the switch.

Once control passes to a new owner, management is no longer free to devise and progress to its development strategy and it cannot act solely in the interests of the acquired company if these conflict with those of the new parent. Strategic options, although are well constrained therefore the self-interest in the management of an independent company can be reduced where managerial drive and entrepreneurship may be dull.

The loss of strategic control over functions and resources fundamentally undermines an economy’s ability to anticipate and respond to the changing economic environment and to generate new economic activity from within. The regional effects of this loss of strategic control cause by M & A can therefore be considered in terms of those that are internal to the company acquired, and those that are external to the company and affect the wider regional economy.

Changes in the structure of production between the acquired and acquiring companies following the merger are unimportant per se in the merger literature. The reason is that mergers usually occur within the same unit of account, e.g. within the national premises.

However, the significance of a merger does not lie in the occurrence of rationalization or switches of demand and resources between the companies, but whether such changes have net effects on the appropriate indicators of economic performance for the merged company. If no resources are lost to the unit of account, then the crucial question concerns whether mergers and acquisitions promote more efficient use of resources. However, whenever takeovers occur between different units of account or between different regions and the focus is on the effect on economic performance in only one of those regions, then the impact on resource demand and supply within that region is considered as well as the effect on economic efficiency.

An external takeover may, for example, result in more efficient use of resources in the combined company, but for the acquired regional company a whole range of eventual effects is possible. In this case, the acquired firm could experience some neglection in its scale of operations, a lower rate of growth, and a reduction in the sophistication of its operations. That means these effects may be associated with the removal of key control and operational functions such as the planning of corporate strategy, investment appraisal, accounting and finance, R&D, marketing, purchasing, legal advice, and several others.

The firm may also experience the removal and simplification of its products and product lines. Conversely, the takeover could enable an acquired company to enjoy an increase in the number, size, and sophistication of its functions and gain access to markets, new products, and processes, managerial expertise, and finance (Ashcroft & Love, 1993, p. 35).

Real Life Acquisition of Netscape and AOL

Friendliness is the key tool in making mergers a success. Consider the acquisition of Netscape by AOL (America Online). Netscape, the pioneer in Internet access, employed some of the brightest minds in the software industry while AOL was best known for providing access to users who are largely computer illiterate. However, at the time of the deal, AOL was moving in the direction of technological sophistication and Netscape had been having problems due to Microsoft’s strong competitive position. This acquisition was a success since the companies need each other, yet industry observers were concerned that a combination would scare away many of the talented minds that were Netscape’s greatest strength.

AOL acquisition of Netscape is an illustration of a successful acquisition of how a friendly deal can work. As a start, both companies were backed by Kleiner Perkins Caufield & Byers, a leading venture capital firm in Silicon Valley. Kleiner companies come together annually for a private conference. It was at the June 1998 meeting that Stephen Case, Chairman of AOL, told James Barksdale, Netscape’s CEO, that AOL should have bought his company years ago. However, after discussions by November, the companies considered a wide range of possible partnerships, including a deal that would embed Netscape’s browser into AOL’s software.

Since the ultimate deal was dependent on a venture with yet another Kleiner company, therefore AOL to sell Netscape’s talented employees on the benefits of the acquisition, agreed with Sun to purchase $500 million in computer systems and services over three years in exchange for access to Sun’s sales force of 7,000. This was a huge increase over the 700 salespeople Netscape had previously employed.

Another important aspect of the deal was the vocal support of Netscape principals, especially those of the target firm. Marc Andreessen, co-founder of Netscape, reflecting on the combination, said, “America Online has changed from a closed online service for novice users to an Internet media and technology company with a diverse set of brands. These two companies have been moving in the same direction, and the fit is good” (Hitt et al, 2001, p. 66).

The above example indicates that successful acquisitions require thoughtful selection, diligent planning, and appropriate financing, but these actions are not enough since success also requires cooperation. Merging two companies is complicated and requires much work by many people such that an uncooperative spirit in the target firm can lead to disastrous results. AOL’s deliberate approach reduced the potential for turnover in Netscape through simultaneous negotiation of a joint venture with Sun Microsystems. Therefore AOL being aware of the consequences of an unfriendly attitude responded positively to what is most important to the target firm is an excellent first step toward creating an atmosphere of trust and cooperation.

Real Life Mergers

While analyzing merger cases, it was found that in eleven of the twenty-five cases, the Scottish company actively sought the merger, and in most of these cases, it selected the acquirer. The most common reason for a merger is to gain access to extra finance which the firm is unable or unwilling to raise by other methods. In five cases, the firm feared an unwelcome takeover bid and the possibility of an unwelcome change of policy, coupled with the possibility of asset-stripping.

Five of the companies had commercial problems, in two cases very severe. In three cases, the controlling family wanted to sell up, and in one case the family wished to avoid issuing new equity, which would have diluted their control and raised the possibility of a hostile takeover. In another case, a private company found itself with management succession problems and declining performance after the death of its owner and sought the takeover largely to rectify its decline. In addition to these eleven cases, there were a further three in which the company was sold at the instigation of the sole or dominant shareholder. One of these involved a Scottish holding company that wished to sell one of its subsidiaries, while the other two involved the unexpected sale by non-Scottish concerns of strategic shareholdings which led to takeover bids.

Real Life Merger of Daimler Chrysler

The merger is an example of how mergers across borders can be made successful on an international platform. The announcement of the cross-border transaction as the world’s largest industrial merger stunned the automobile industry when they hear that Germany’s Daimler-Benz AG and United States’ Chrysler Corporation are intending to merge. Such a merger between two of the automobile industry’s most profitable manufacturers created a company that ranked third globally in sales revenue and fifth in-vehicle unit sales for the reason the goals were commonly followed by a friendly environment to create the world’s preeminent automotive, transportation, and Services Company.

This merger was driven by the formerly independent companies’ needs. The reason for the merger was the profitable company’s presence outside U.S borders, therefore Chrysler while recognizing the fact that it lacks the infrastructure and depth of management required to become a truly global corporation, decided to a merger.

Another reason that draws us to the conclusion of the merger was when executives concluded that Chrysler CEO Robert Eaton’s goal to increase the firm’s sales revenue by at least 20 percent annually could be reached only by substantially enhancing the company’s presence in markets outside the United States. On the other hand, for Daimler-Benz, it was difficult to cope up with the increasing competition in the luxury car market as an indication that his firm had to diversify its product line and distribution channels. Therefore Daimler-Benz had to sell its products in a larger number of national markets on a global basis to achieve its growth goals and the merger was the best option left.

In addition to cost-based efficiencies, DaimlerChrysler sought cross-selling synergies through the merger which for the most part, were to result from a melding of firm-specific assets and capabilities, such as the ability to consistently develop high-technology advances and rapidly introduce new products to the marketplace (Hitt et al, 2001, p. 144).

Petroc

Petroc was initiated as one of many small independent oil refining operations of the early 1900s which by the end of the twentieth century was the product of over 100 mergers, acquisitions, and joint ventures. Petroc with the purchase of a small refinery needed upgrade and repair by a young entrepreneur who realized that the early days involved a great deal of turmoil, including periods of significant financial insecurity and competition with former allies.

The company’s history tells us that the business survived primarily through the extremely hard work and dedication of the founder who was notorious for working long into the night and through weekends as well. The founder spends a great deal of time with workers in the plant itself whom he came to trust and to treat as something of a large family and it was through these experiences of struggle and survival that the culture of Petroco was formed.

The values of Petroco’s culture revolved around dedication and loyalty which were exhibited through the ‘artifacts’ of what might well today be considered as ‘workaholics’. The driving forces behind such behavior could have been fear of failure, or personal ambition, or greed but according to speeches given by the founder, his motivation was something more like the passion or intensity that drives a scientific researcher.

The first cultural change in Petroco was marked by the proposed merger between Petroco and a larger competitor in the late 1940s which was followed by vulnerabilities. The competitor had lower net profits along with the fact that whereas Petroco was now a publicly-traded company with many ties to the financial community, the competitor, though technically a public company, operated essentially as a partnership of the cofounders.

There were differences between the two companies that merged, such that Petroco’s founder noted that there was a little resemblance in the character or the psychology of the two companies. The differences were manifested in a dinner conversation in which Petroco’s founder reacted to the enthusiasm of a member of the other company regarding vacations by remarking that for Petroco, work was their ‘vocation, avocation, and vacation’. Despite all the differences with culture dominating nature, the two companies completed the merger.

Petroc in the early 1950s acquired many small companies and continued seeking a prominent position. This was the time when doctors informed Petroco’s founder of some problems with his health, and the future leadership of the company was, for the first time, in question (Daniel & Metcalf, 2001, p. 210). With twelve to eighteen-hour workdays continuity through the weekends, growth continued primarily through acquisitions, expanding current operations, acquiring larger means of transportation and distribution, and reaching into new, but related industries.

By the early 1960s, the volatility of oil refining and the price fluctuations for petroleum products caused Petroco to look for ways to expand into new markets. Profits in refining and sales were flattening, and there did not appear to be any simple way to improve profitability through increasing efficiencies. Petroc began by expanding its operations beyond the fuels produced by most refineries to produce petrochemicals.

It continued this expansion through its largest acquisition to that point, which formed the foundation of a new division focused on the chemicals industry. By 1967, Petroco as a whole acquired more than 75 other companies among which the chemical division alone was made up of 63 facilities covering manufacturing, research, service, and distribution facilities and was located in 22 states and 14 foreign countries (Daniel & Metcalf, 2001, p. 210).

With the death of Petroco’s founder in the late 1960s, a major milestone in the company’s history and culture was set. The company had grown and expanded tremendously from its initial roots in the early part of the century and now included many executives and managers, all of whom had come up in the company under the watchful eye of the founder. Leadership fell, collectively, to two very different individuals, but ones who were seemingly able to complement each other’s differences.

The older was a nephew of the founder and the younger a law school graduate who had only joined the company in the early 1950s. Though they had fairly distinct roles the elder working at the policy level and the younger more in charge of operations they reportedly were able to continue the legacy of shared responsibility and overlapping efforts established by the founder.

With a defined and fix the culture of Petroco, profits in existing operations took fairly dramatic drops through a variety of circumstances and several large and key mergers and acquisitions fell through. The circumstances were due to the complaints that began to be voiced by citizens groups about possible health damage from the emissions of various company operations, and government requirements were developed requiring the production of unleaded gasoline requiring a significant change to existing equipment and operations.

For the first time in Petroco’s history, major austerity measures were undertaken in the company to reduce costs, including a reduction of executive salaries, elimination of the traditional Christmas parties, and scrutiny of even business-related travel and expenses. From 1970 onwards, Petroc is under fluctuation and turmoil because of erratic profitability, frequent mergers and acquisitions, and younger executives taking charge as senior managers.

This is not to say that the acquirers set out deliberately to exploit the acquired firm; simply that the acquisition was perceived as being an answer to the needs of the acquiring firm with relatively little thought given to those of the acquired company. Interestingly, the poor outcome of these takeovers did not appear to spring from any lack of industrial logic between the partners. Petroc’s merger was followed by a failure, and further acquisitions were like multiplying failures followed by erratic management.

The merged partners of Petroco made similar products in industries that were reasonably healthy and which appeared to have reasonable growth prospects, therefore the mergers failed to work as expected because of the gross insensitivity of the acquirer in one case and because of changed circumstances in the other. It seemed that the merger was less sound than it at first appeared, the companies were at opposite ends and communication between them was poor, they served different end markets; and, although similar, the technologies involved in their products proved to be quite different. They had different perceptions which only enhanced the communication barrier between their environments.

The reasons why the takeovers worked out as badly as they did seem to lie mainly in the nature and behavior of the acquirers was that the acquired companies saw themselves as a budding corporation, but had virtually no experience of running subsidiaries. Because of the acquirers’ motives for their purchase, it was probably predictable that Petroco would suffer, but they undoubtedly suffered more because of the inability to maintain that friendly and cooperative behavior, the founder of Petroco devised.

Conclusion

M & A uphold effective actions and processes as well as some pitfalls which have already been discussed in the essay by highlighting ineffective actions and processes in various case studies mentioned above. This is not to say that all mergers and acquisitions produce negative results, however for an M & A to be successful, it requires a friendly and cooperative environment which not only bring to the firm plants and equipment, but employees, management teams, customer and supplier relationships, and often new product lines.

Firms that got engage in multiple acquisitions over time are likely to introduce fewer new products to the market because they often overemphasize financial controls and become more risk-averse. These firms then look for their competitors to make acquisitions to supplement their innovations. As these firms provide an opportunity to the newer firms to come up with new products, they integrate them into a system that discourages innovation, and thus they must continue to buy other firms with innovative new products to compete, to the extent that the industries in which they operate require new products to meet customer demand.

On the other hand, potential merger partners may also find it easier to achieve a friendly and productive relationship during the acquisition process if they have worked together before. To maintain a friendly deal, adequate timing is a significant issue that does not necessarily require formal meetings or time spent in a formal business venture. Therefore, we can say that M & A is a two-way deal seeking to produce financial benefits expected or desired for the acquiring firm.

Work Cited

Ashcroft Brian & Love H. James, (1993) Takeovers, Mergers and the Regional Economy: Edinburgh University Press: Edinburgh.

Daniel A. Teresa & Metcalf S. Gary, (2001) The Management of People in Mergers and Acquisitions: Quorum Books: Westport, CT.

Hitt A. Michael, Harrison S. Jeffrey & Ireland R. Duane, (2001) Mergers and Acquisitions: A Guide to Creating Value for Stakeholders: Oxford University Press: New York.

Walter Ingo, (2004) Mergers and Acquisitions in Banking and Finance: What Works, What Fails, and Why: Oxford University Press: New York.