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Structural Adjustments in the Acquiring Firm in International Corporate Acquisitions

Diplomarbeit 2006 74 Seiten

BWL - Unternehmensführung, Management, Organisation

Leseprobe

Table of Contents

List of Figures

1 Introduction

2 Analysis of Corporate Acquisitions
2.1 Classification of Corporate Acquisitions
2.2 Distinctiveness of International Corporate Acquisitions
2.3 Analyzing Motives for Corporate Acquisitions
2.4 Failure and Underperformance of International Acquisitions
2.5 The Acquisition Process

3 The Organizational Structure
3.1 Types of Organizational Structures in Focus
3.2 International Growth and the Organizational Structure
3.3 Structural Adjustments
3.3.1. The Objectives to Reach with Structural Change
3.3.2. The Acquired Firm’s Alternative Integration Approach
3.4 Concise Analysis of the Conducted Adjustments
3.5 Counterforces During Change

4 Antagonizing Counterforces to Structural Adjustments
4.1 Implementing a Theoretical Approach
4.2 Applicable Mechanisms to Diminish Counterforces
4.3 Critical Analysis of the Suggested Approaches

5 Conclusions

References

List of Figures

Figure 1: Forms of Corporate Amalgamation

Figure 2: International Acquisitions Valued Over US$ 1 Billion in Recent Years

Figure 3: The Institutional Environment and International Business

Figure 4: Potential Corporate and National Cultural Clashes in Acquisitions

Figure 5: Theories of What Causes Acquisitions

Figure 6: Sample Business Risks from an Acquisition Perspective

Figure 7: Phases of the Acquisition Process

Figure 8: Sample Functional Structure of the Target Firm

Figure 9: Sample Product Divisional Structure of the Acquiring Firm

Figure 10: Stopford and Wells’ International Structural Stages Model

Figure 11: Possible International Product Divisional Structure of Combined Entity

Figure 12: Advantages and Disadvantages Regarding the Degree of Integration

Figure 13: Conducted Structural Adjustments

Figure 14: The Organizational Economic Triad

Figure 15: Timeline of Structural Change

Figure 16: Forms of Intrinsic Motivation

Figure 17: Analyzing a Manager's Strengths and Weaknesses for a Vacant Position

1 Introduction

Today’s tempo of global change and technological development often does not allow organizations to keep pace with the help of endogenous growth strategies. “Surviving in global competition is the driving force of the recent takeover boom,”[1] setting demands on the top management of any firm aspiring to expand abroad. As a result, acquisitions become an inevitable management instrument, even though it is vulgo accepted to be a chancy pathway. The terms “acquisition” and “takeover” are part of the mergers and acquisitions parlance and both will be used interchangeably throughout the thesis. Prominent recent examples as the international takeover attempts of E.ON/Endesa and of Mittal Steel/Arcelor demonstrate the topicality of the subject.

The purpose of this thesis is to study structural adjustments, which are required in order to integrate a cross-border acquisition into the acquiring firm’s organizational structure. In particular, the central point is on the human resource factor during an international takeover. Furthermore, an analysis of negative internal corporate forces, which are threatening efficient outcomes and an answer to how such forces might be prevented, is given.

By focusing on a merely domestically operating company of a medium size, the thesis examines a theoretical initial takeover of a foreign competitor. The post-acquisition structural adjustments of the acquiring firm is of particular interest, using two specific hypothetical organizational structures, the functional and the divisional structure, to illustrate the optional adjustments in the organizational architecture of the acquiring firm. Throughout this thesis, the terms organizational “structure”, “architecture”, “design”, and “arrangement” will be used synonymously. The objective to pursue is the full and successful incorporation of the acquired firm by trying to minimize time and costs needed for the integration process.

To begin with, section two introduces motives, which firms pursue when acquiring a corporation. For instance analyzing the theory of diversification and distinguishing between the motives of operating and financial synergy. Furthermore, section two does specifically delineate several rationales for international takeovers by presenting prominent cases and linking them to fundamental economic theories. Moreover, the various reasons for a failure of cross-border acquisitions, differentiating (amongst others) between internal and external risks, are presented. With the introduction of the process of acquisition and its evaluation, section two concludes and leads over to part three.

Within the third section, the focal point shifts from facts and the analysis of transnational corporate acquisitions towards the actual process of adjusting the organizational structure in order to integrate a cross-border takeover. First, the theoretical types of organizational structures, which are in focus of the thesis, are introduced and analyzed while outlining the objectives to pursue with structural adjustments. Additionally, section three provides a detailed suggestion of how to adjust the organizational architecture in the specific case of this thesis. Potential problems, which may arise throughout this process, are outlined, concentrating on internal corporate specific challenges.

Section four provides a detailed theoretical approach to antagonize counterforces during structural adjustments after a transnational takeover. Additionally, a chronological fragmentation of the process of structural change is offered which afterwards is used to apply the initially introduced theory to prevent counterforces of structural realignment. Throughout this thesis, the terms “change”, “realignment”, “adjustment”, and “transformation” will be used as a synonym for modifications in conjunction with the organizational structure. Furthermore, section four provides selected applicable examples of how to cope with specific contrarian forces during times of change, followed by a critical analysis of these commendations.

Finally, the conclusion presents a perspective on the applicability of the suggested tools by elucidating the challenges it may have to encounter during daily business routine. Additionally, section five is concluding with an outlook for further research, which emerges to be valuable for academic discourse.

2 Analysis of Corporate Acquisitions

Corporate acquisitions are a significant element of daily business transactions across the board. The growing volume of transnational acquisitions radically transforms the world of business, not limited to any branch or country. Driven by market forces and an incessantly changing global environment, acquisitions are forming a nouveau economic, social, and cultural setting wherever they are taking place.[2] Correspondingly, the multifarious nature of acquisitions with their motives and challenges is discussed within this section.

Confining the Terms

The diverse use of terms in the subject of corporate acquisitions demands a clear classification that is focused on the intended purpose. According to economic discourse, an acquisition is “the takeover of one company by another”.[3] Due to the specificity of this thesis’ topic, a further containment of the term is required. Thus, a corporate takeover is categorized as the purchase of 100% of the proprietorship or 100% of share voting rights of a corporation (the object of acquisition) through another company (the subject of acquisition) by paying the price of purchase. Since international acquisitions are in the focus of interest, this transaction is conducted across borders, i.e. the object and the subject of acquisition are of a different nationality.[4] For the reason that national laws have a formidable different definition of when a majority holding allows the acquiring company a commanding influence on the target firm, this thesis simply focuses on a stake of 100% in the acquired firm. Furthermore, will the purchase price not particularly be defined but simply seen as the value paid for the possession of ownership.

The content of this thesis is an analysis of structural adjustments in order to integrate an international acquisition in the perspective of the acquiring firm. To begin with, a closer look at acquisitions overall, whether they are domestic or international, is expedient. Generally, acquisitions are an instrument of external corporate expansion and growth, which nowadays can be observed in numerous economies across-the-board. Takeovers are not the only means of corporate growth, but are an alternative to growth by internal or organic capital investment.[5]

Figure 1: Forms of Corporate Amalgamation

illustration not visible in this excerpt

Source: (adapted from) Dabui (1998), p. 13.

Acquisitions represent the last stage of a band of options companies have in combining with each other. Figure 1 offers an abstract of these options, differentiating between corporate cooperation and corporate integration. From the least intense and least complex form of cooperation, the licensing, to collaboration through alliances, and then to joint ventures. Mergers and after that acquisitions conclude the combination options companies have to join resources.[6] A selection of different forms of acquisitions will be discussed in section 2.1.

Mergers and acquisitions are at times hard to be distinguished from each other, especially when comparing a complete takeover with a merger. The main criteria for the determination between a merger and an acquisition are which company’s objectives will be followed posterior to the transaction plus the intensity of combination between the involved firms.[7] In a merger, the corporations come together to combine and share their resources to achieve common objectives and to create a new corporate entity. In an acquisition by contrast, one company secures an adequate proportion of a thitherto economically independent company’s stock or assets to have power over its decisions. The object of acquisition will be managed in a way that is consistent with the acquirer’s needs, for instance as an independent holding, apportioned into single business entities, or integrated into the acquiring firm’s structure. Mergers and takeovers have the greatest implications for the size of investment, control, integration requirements, pains of separation, and human resource issues, some of which will be focused on in sections three and four of this thesis.[8]

Still, it is habitually difficult to state whether a transaction can be classified as a merger or as an acquisition. One outstanding case is the acquisition/merger of Daimler Benz and Chrysler in 1998. Officially, it was announced as a merger of equals, but after the transaction was conducted, it was uncertain whether it actually was a merger or rather an acquisition of the Chrysler Corporation by the Daimler Benz AG. The CEOs of the new business entity, the headquarters’ location, and the leading corporate policies are rooted in the German headquarters of Daimler Benz . Often, such transactions are done through a mutual transfer of stocks between the involved corporations, which makes it additionally complicated to declare whether it was a merger or a takeover.[9]

Mergers are typically undertaken in a friendly business environment with a mutual interest in a successful amalgamation. An agreed acquisition is also contracted on friendly terms, as when the owners of a small company seek to liquidate their capital or a diversified company wishes to divest a non-core business. Frequently however, takeovers occasion fierce altercations between acquiring and target companies, and every so often between opponent bidders themselves. Such an attempt is called a hostile acquisition. The sour climate engendered by this element of competition and the impact of such an investment on the involved firms are two factors that make the management of the post-acquisition process so complex.[10] Nevertheless, the takeover this thesis focuses on is of a friendly nature in order to factor out possible additional complex influences.

2.1 Classification of Corporate Acquisitions

Literature distinguishes principally between three different types of acquisitions. All types differ in the attributes of the object of acquisition. The first category to look at is a vertical takeover, an acquisition in which firms “…seek to control additional parts of the value-added chain. Acquiring either a supplier (a backward vertical acquisition) or a distributor (a forward vertical acquisition) or an organization that already controls more parts of the value chain than does the acquiring firm…”.[11] Recapitulating, a vertical takeover takes place if the two companies involved are operating in the same branch of business but in a dissimilar level of the value chain.

The second type of acquisition is specified as the horizontal acquisition. This is a takeover of a company, offering products or services similar to those of the acquiring corporation. Habitually, horizontal acquisitions involve the takeover of a competitor, operating in a highly related business field, in the same branch, and in a similar economic stage.[12]

Occasionally literature classifies a third type of acquisitions, the diagonal acquisition, also called a conglomerate or lateral acquisition. It takes place when enterprises from different market sectors are involved and one firm serves a variety of markets.[13] The AOL Time Warner deal of the year 2000 is an example of a diagonal integration, combining media with internet infrastructure services.[14]

Furthermore, these types of acquisitions can be subclassified into different degrees of investment. Depending on the level of potential exertion of influence, it may be differentiated between a minority holding, an equivalent holding, a majority holding, and the takeover of the entire company.[15] Due to different international laws and regulations on when a company takes over the complete controlling interests of another, this thesis focuses merely on takeovers that do allow a commanding influence on the target firm, as stated above. Additionally, the takeover classification, which this thesis focuses on in subsequent sections, will be a horizontal cross-border acquisition.

2.2 Distinctiveness of International Corporate Acquisitions

Transnational corporate acquisitions are an exceedingly significant subject of international business and correspond to the prime portion of global foreign direct investments. In 2004, according to the World Investment Report of the United Nations Conference on Trade and Development, the world wide cross-border Merger & Acquisitions (M&As) reached to a number of approximately 5,100 – 12% higher than the previous year. The total value of these transactions rose by 28% to US$ 381 billion, which was mostly due to M&As among developed-country firms. The following figure merely shows the global M&A activity with values of over US$ 1 billion.[16]

Figure 2: International Acquisitions Valued Over US$ 1 Billion in Recent Years

illustration not visible in this excerpt

illustration not visible in this excerpt

Abbildung in dieser Leseprobe nicht enthalten

Source: (adapted from) UNCTAD (2005), p. 9.

As Figure 2 illustrates, M&As reached a peak in the year 2000 with 175 deals, worth about US$ 866.2 billion. The subsequent decline can be explained by the global economic downturn during the years 2001-2003. However, trends are indicating a new boost in takeover activities for the upcoming years, which is not limited to large multinational corporations anymore, indicated by the estimates for 2005.[17]

Worldwide acquisitions are a cardinal but chancy way for companies to enter into foreign markets. Attributable to this fact, managers have to be aware of the difficulties accompanying such acquisitions and the differences to domestic takeovers. In a home as well as an acquisition in a foreign country, the management has to consider various aspects prior, throughout, and after a takeover. One example which is part of the general due diligence[18] of any major takeover target is the antitrust legislation of the government. Hence, the management should take into consideration a potentially resulting antitrust case before it in fact decides to acquire a competitor or another possible target firm. If the a posteriori combined firms are reaching a sensible market share, the management might be prohibited from conducting the takeover by antitrust laws of the governments.[19]

A contemporary case is the abortive attempt of a domestic acquisition by the Axel Springer Verlag AG in Germany, which tried to take over the ProSieben-Sat.1 Media AG. The Bundeskartellamt[20] vetoed the acquisition in January 2006. The new corporate entity resulting from this attempted acquisition would prohibitively strengthen a competition free duopoly, according to Ulf Böge, the president of the German federal antitrust office.[21] This illustrates how intricate antitrust laws are, even for domestic firms in their home markets. Transnational acquisitions yet have to deal with two different antitrust laws, the domestic and foreign laws, which raise an extra arduousness for the acquiring firm. Although the target company in focus of this thesis is of a medium size, nevertheless it is depending on the dimension of the entire industry and the company’s market share if it may also be subject to antitrust laws of the home or target country. However, operating within two different antitrust laws may as well provide opportunities to the acquiring firm, e.g. it can be made use of legal loopholes.

Furthermore, the management has to account for several additional factors affecting an acquisition. For instance environmental regulations, labor and benefit laws, as well as certain political policies, besides the antitrust policy. All of them have an influence on the success of a takeover effort. An international acquisition is indeed, along with the previously described difficulties that are also omnipresent in the home market, of additional impenetrability. Acquiring a company abroad comprises further aspects to focus on, as illustrated in the following figure by Williamson.

Figure 3: The Institutional Environment and International Business

illustration not visible in this excerpt

Abbildung in dieser Leseprobe nicht enthalten Source: (adapted from) Williamson (1996) p. 326.

Figure 3 illustrates a layer schema, an image of corporate governance, and three specific influences it is exposed to in international business: the institutional environment, the individual, and the corporate governance of the acquired firm.[22] The latter aspect illustrated on the left hand side is originally not comprised in Williamson’s model; it is specific to acquisitions. The influence of the acquired firm’s corporate governance on the governance of the subject of acquisition is for instance depending on the size of the takeover target in comparison to the existing firm. Especially when the object of acquisition is to be integrated into the acquiring company’s structure, the more similar the involved firms are in terms of size, the greater may be the acquired firm’s governance influence. This impact could for instance be emanating from the acquiring firm’s top management, trying to preserve its control within the new organization after the takeover.

The next key factor influencing the acquired company’s corporate governance is characterized by the individual, illustrated on the foundation of Figure 3. Each individual, whether it is a member of the organization, a client, or a customer, influences the way of corporate governance. This often capricious influence is derived from possible opportunistic behavior and the individual’s bounded rationality according to Williamson. It implicates that behavioral expectations may vary increasingly more, when crossing framework borders through an acquisition abroad. Cross-national acquirers consequently need to be aware of the influence of further individuals who enter the organizational sphere in a foreign country.[23]

In addition to the two latter factors, by crossing the border with a non-domestic takeover, the acquiring company is also stepping into a different institutional framework, which prevails in each respective country. The institutional environment of a nation comprises key institutions such as the legal system, the financial system, the educational and political system including local, regional, state, and national authorities.[24]The forms these bodies take and their economic role are seen to shape different national business systems.[25] These distinctive systems, representing the explicit rules and regulations of a country, have an influence on the way business is done in a particular market and hence have to be considered when acquiring a firm abroad.[26] Thus, institutional theory is an important aspect that has to be taken into account when acquiring out of the country.

However, the past has shown that several frameworks conform to each other. Outstanding examples are the 25 different institutional frameworks of the European Union’s member countries. They are obliged to adapt their frameworks according to the principles of the European Union. Therefore, it can be assumed that within certain trading blocks and beyond, due to supranational organizations as the WTO, framework effects may play a decreasing role in the future. On the other hand, increasing clashes of cultures within such trading blocks may lead to more dissimilar institutional frameworks. This may be due to the reason that cultures strive to distinguish themselves to encounter national clashes inside trading blocks, leading to more distinct institutional frameworks.

Conversely, all presented influences are subject to possible modifications by the governance, as illustrated by the dashed arrows in Figure 3. The corporate governance of the acquired firm and the individual may be influenced with certain incentive, coordination-, and motivation systems, which segments three and four will take a glance at. Lobbyism is one example of corporate influence on the institutional environment but due to the reason that the analysis of this thesis will mainly focus on internal corporate structural changes, lobbyism will not be discussed any further.

The institutional environment includes another important aspect that is not referred to above and is less likely to harmonize across borders, and it is a factor, which is hard to influence, namely culture – the implicit rules of the institutional environment. According to Hofstede, it is “…the collective programming of the mind that distinguishes the members of one group or category of people from another”,[27] representing a central facet that management has to account for. Culture is a main factor influencing all parts of international business. Periodically, it is a chief issue in a non-domestic takeover, which the management ideally has to deal with already prior to making an offer for the target company.[28]

Aw and Chatterjee stated in their publication “T he performance of UK firms acquiring large cross-border and domestic takeover targets[29], that post-takeover performance regarding the cumulative returns of British firms acquiring domestic targets is superior to that of U.K. firms acquiring foreign companies, particularly Continental-European firms.[30] Albeit the authors also do point out other substantiations for this performance difference as culture, one primary reason was the dissimilarity in the institutional environment, which companies have to deal with when acquiring abroad. Notwithstanding, these studies merely focused on acquiring British firms. Nevertheless, according to the authors, these findings can be taken as an instance for the majority of industrialized countries and therefore underline the importance of the differences between domestic and international acquisition projects. However, not only the different cultures of the markets entail a great challenge but also the cultural differences inside the corporations as illustrated in the following figure:

Figure 4: Potential Corporate and National Cultural Clashes in Acquisitions

illustration not visible in this excerpt

Abbildung in dieser Leseprobe nicht enthalten Source: (adapted from) Larsson/Risberg (2001), p. 45.

Figure 4 shows the increasing cultural clash in conjunction with corporate cultural differences. Because the corporate culture[31] between combining firms of different nationality is often more distinctive and more prevalent than in potential domestic acquisition targets, cross-border acquisitions are most likely to be facing a dual clash. This clash can additionally complicate the management of an acquisition because it may divert valuable management resources to cope cultural differences.

Hence, it can be implicated that the formerly prevailing way of governance that may have worked well for the domestic market often has to change fundamentally because it is not suited for the unfamiliar overseas operations. Cultural clashes in domestic acquisitions may arise on the corporate, the industry, business, and the regional levels, but national factors such as legal conditions, language, and governmental issues are the same.[32] The subsequent segment three will analyze a structural change of an organization that can be seen as a major interference into the corporate culture of a business.

2.3 Analyzing Motives for Corporate Acquisitions

At large, the following motives and reasons for domestic as well as international acquisitions are based on two central theories. The first fundamental theory is the transaction cost theory[33], where the justification for acquisitions rests with minimizing the sum of production and transaction costs. The common motives for corporate acquisitions described in the next paragraphs such as synergy and diversification can be seen as examples of the transaction cost theory. The second fundamental theory is the resource-based-view [34] , which suggests that through a takeover, a firm can maximize value by gaining access to the target firm’s valuable resources. The subsequently described drive for internationalization and the exploitation of opportunities and resources with the assistance of domestic and cross-border acquisitions can be seen as resource-based-view motives.

General Motives for Domestic Takeovers

Albeit domestic and especially cross-border acquisitions are of a difficult nature and comprise imponderableness, as stated in the latter subsection, there are numerous reasons for why companies risk such an investment. In general, literature differentiates between copious theories of what specifically causes takeovers. Mainly, these theories/motives do not distinguish between domestic or international corporate acquisitions because they can be followed in the domestic as well as in the foreign market. Nonetheless, some theories for why corporations acquire other companies are exclusive to international takeovers. These theories will be delineated in the succeeding subsection. The following table provides an assortment of general hypotheses and shows that strategic objectives are the proximate motives for acquisitions:

Figure 5: Theories of What Causes Acquisitions

illustration not visible in this excerpt

Source: (adapted from) Depamphilis (2003), p. 20.

As Figure 5 shows, the theory of synergy is defined as the enhanced use of complementary resources. Being one of the salient motives for acquisitions, whether it is financial or operating synergy, it represents a decisive reason for takeovers. The financial synergy theory proposes that acquisitions take place when the value of the combined firm is greater than the sum of the values of the individual firms. The supplementary value, or synergetic gain, is resulting from an increase in market power, some form of financial gain or from reverse internalization, which occurs when “firms acquire skills and resources from cross-border acquisitions that are expected to be valuable in their home markets”.[35]

Operating synergy on the other hand, is the improvement of operational mechanisms such as production and output due to the combination of technological skills and assets. However, because of greater and often improved output potentialities, it may also lead to a value increase of the combined firms as financial synergy does. Economies of scale, as one case of operating synergy, can be achieved by increasing the total output in order to reduce the fixed cost per unit. By acquiring a supplier for instance, a firm may avert possible interregnums in supply, which might arise when autonomous supplier agreements terminate. Contrariwise, economies of scope – an additional case of operating synergy – refer to using a specific set of skills, acquired through a takeover, to improve production and sales.[36]

Diversification on the other hand – be it geographical or operational – refers to a strategy of buying firms outside of a company’s current main position of business in order to smooth the earnings results of a firm. In addition to that, diversification can hedge a company against an economic downturn in an individual industry or country, e.g. by shifting a fraction of the firm’s assets from a cyclical industry to a more stable industry. A further argument for diversification that often is used to justify acquisitions is to shift from a core product to products, which are having higher growth prospects.[37] An example for international diversification is the U.S. firm Access Industries Inc. that produces elevators and moving stairways. In 2004, it acquired the Russian firm Svyazinvest JSC that is a telephone communications company. The telephone communications branch is considered to promise strong future growth, especially in the emerging markets such as Russia.[38]

In addition to the delineated general economic motives for acquisitions, there also often are managerial motives driving a company to acquire another firm. The managers may undertake acquisitions in order to pursue growth in the size of their firm because their perquisites, compensation, plus their status and influence within the company are a function of the firm’s size. The growing dimension and complexity of the firm may increase the manager’s salary, even when there is no corresponding increase in shareholders’ wealth. Furthermore, they may have the motive to secure their job by using an acquisition in order to diversify risk, minimize the costs of financial distress and bankruptcy. Moreover can an acquisition prevent the takeover of the own company by a competitor which could result in the managers’ layoff.[39]

Specific Motives for International Acquisitions

Several different reasons for why corporations undertake acquisitions are unique to cross-border takeovers. An abstract of the most frequent reasons that only apply for international acquisitions was presented by Schuler, Jackson, and Lou in 2004. According to them, the number one reason is the promotion of growth in foreign markets. Surplus cash generated in the home country is available to invest in faster growing foreign economies, hence can be used to expand abroad and grow through a cross-border takeover. A well-known case is the acquisition of the British cellular phone network company Orange by France Télécom for approximately € 40.3 billion in 2000. France Télécom was capable to generate large earnings for several years because of a monopoly in the home market, which expired in 1998.[40] Moreover, an international expansion might be necessary if the domestic market is mature or simply too small to accommodate growth and hence forces the company to acquire companies abroad in order to maintain or increase growth.[41]

A further reason for why to purchase a firm across the border is as a response to government policy. Through an international acquisition, tariffs and quotas can be circumvented; likewise, the company is able to take advantage of a different tax structure and other superior policies in a foreign country. Prominent cases are the international expansions through takeovers by various industries of the developed nations into the emerging markets of for instance the European Union . Other than that, transnational expansion can also be enforced in order to follow clients. For example do banks or consulting firms expand abroad to retain clients who have expanded across the border.[42]

Child, Faulkner, and Pitkethly point out auxiliary motives, which companies might pursue when going abroad. According to them, firms are goaded by the globalization of markets and opportunities offered by the liberalization of trade or by the search for new sources of innovation and the unique competencies sustaining such innovations.[43] Moreover, a transnational acquisition in a new competitive environment on a global scale can make necessary market entries for enduring growth through an international acquisition less demanding. In case the competitor has a much larger market power for example, a takeover on occasion offers the merely feasible way to access foreign markets successfully.[44]

Acquisitions often do not follow a single motive. For instance can a strategic realignment, the acquisition of needed capabilities to respond to transnational technological, political, or regulatory changes, be adjuvant in order to secure or gain market power. The takeover of the British automobile company Rover by BMW in 1994 can be seen as a case of an international acquisition with multiple sample motives. The German car maker acquired Rover through the privatization of state-run firms by the British government. The access to a foreign market, regulatory changes through the deregulation of the British market, and the gain of market power can be mentioned as rationales for the takeover by BMW.[45]

The company this thesis uses as a model to describe and analyze an international takeover and the ensuing delineated structural adjustments are following a mixture of the transaction cost, as well as the resource-based-view theory, which were delineated in the introduction of this section. Hence, the firm follows manifold economic rationales for the cross-border acquisition as in the sample case of BMW. The general motive is to ease the entrance into a foreign market. Nevertheless, the superior motives are seeking to make use of the target company’s intellectual resources and the aim for a decrease of production and transaction costs, which may be attained through synergy effects resulting from a successful integration of the takeover target.

2.4 Failure and Underperformance of International Acquisitions

In section two, the large quantity of cross-border transactions was stated. This may indicate the inevitability that at least a few acquisitions do not perform the integration of a new corporate entity successfully and therefore can be considered as a failure. Yet, it is a large number of failing acquisitions, as this subchapter will delineate. Furthermore, the various reasons for this unsuccessfulness of many takeovers will be analyzed.

“More than three-quarters of corporate combinations fail to attain projected business results. In fact, most produce higher-than-expected costs and lower-than-acceptable returns. Meanwhile, executive time and operating capital are diverted from internal growth; moral, productivity, and quality often plummet; talented crew members jump ship; and customers go elsewhere. In a great majority of combinations, one plus one yields less than two.” [46]

Generally, studies estimate the risk of failure at about 50 percent, even though the results vary keenly because of the different criteria used by researchers. For example, the McKinsey Corporation published a study in the year 2000 where they stated that 50 percent out of 507 analyzed international M&As failed. The research criteria in this study was the capital market performance, which is one out of two main approaches to assessing acquisition failure.[47]

The other main approach was used by the management consulting firm Booz-Allen & Hamilton (BAH). They published a study, two years prior to McKinsey, where the research criterion for success or failure was whether the combining firms reached their official goals or not. These goals can be described as performance measures such as profitability and market share for instance. BAH then concluded that according to the goals set, 34 percent of the 150 cases analyzed failed. A further, dissimilar study found out that up to 76 percent of cross-border acquisitions do not reach the level of success initially anticipated.[48] This degree of difference in statistics shows, it is complicated to say whether an international acquisition succeeded or not. Each study may use different criteria for failure or success and may be using another period, which should be acceptable until a takeover is considered a failure. In addition to that, the reason for the variety of results may lie in the different nationality of the involved firms or of the entire sample. However, all studies show that a considerable proportion of transnational takeovers do not reach their intended goals and fail, unrelated to the selected criteria in a study.

[...]


[1] UNCTAD (2000), p. 1.

[2] Picot (2000), pp. 3-16.

[3] Rosenberg (1995), p. 4.

[4] See Lucks/Meckl (2002), pp. 23-36.

[5] See Weston (2001), p. 123.

[6] See Schuler (2004), pp. 81-83.

[7] See Zimmer (2001), pp. 5-7.

[8] See Schuler (2004), pp. 81-83.

[9] See Zimmer (2001), pp. 5-7.

[10] See Child/Faulkner/Pitkethly (2001), p. 2.

[11] Hitt/Harrison/Ireland (2001), pp. 153-156.

[12] See Borghese/Borgese (2002), pp. 20-21.

[13] See Majone (1996), p. 142.

[14] See Borghese/Borgese (2002), p. 10.

[15] See Lucks/Meckl, (2002), pp. 23-36.

[16] See UNCTAD (2005), pp. 1-12.

[17] See UNCTAD (2005), pp. 1-12.

[18] For further Information see Rosenbloom (2002).

[19] See Rosenbloom (2002), pp. 6-11.

[20] The Federal Cartel Office in Germany.

[21] See Siebenhaar (2006), p. 2.

[22] See Williamson (1996), pp. 222-348.

[23] See Williamson (1996), pp. 222-348.

[24] See loc. cit., 327-329.

[25] Child/Faulkner/Pitkethly (2001), p. 43.

[26] See loc. cit., pp. 43-46.

[27] Hofstede (2001), p. 9.

[28] See Lucks/Meckl, (2002), pp. 252-267.

[29] Aw/Chatterjee (2004), pp. 337-349.

[30] See loc. cit.

[31] Corporate culture refers to the norms and value systems, organizational and administrative practices plus employee expectations, which are shared among employees of an organization.

[32] See Eberhardt (2003), pp. 59-100.

[33] See Williamson (1996), pp. 59-92.

[34] See Barney (1991), pp. 99-120.

[35] Seth/Song/Pettig (2000), pp. 388-390.

[36] See Seth/Song/Pettig (2000), pp. 388-390.

[37] See Depamphilis (2003), pp. 22- 24.

[38] See UNCTAD (2005), p. 281.

[39] See Sudarsanam (1998), pp. 15-21.

[40] See Riedel (2000), p. 25.

[41] See Schuler/Jackson/Lou (2004), pp. 82-83.

[42] See loc. cit.

[43] See Child/Faulkner/Pitkethly (2001), p. 9.

[44] See Bora (2002), p. 11.

[45] See Wolf (1994), p. 11.

[46] DiGeorgio (2002), p. 135.

[47] See Lucks/Meckl (2002), p. 11.

[48] See loc. cit.

Details

Seiten
74
Erscheinungsform
Originalausgabe
Jahr
2006
ISBN (eBook)
9783832498122
ISBN (Buch)
9783838698120
Dateigröße
885 KB
Sprache
Englisch
Katalognummer
v224929
Institution / Hochschule
Otto-von-Guericke-Universität Magdeburg – Fakultät für Wirtschaftswissenschaft
Note
1,7
Schlagworte
takeover structural change management counterforce

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Titel: Structural Adjustments in the Acquiring Firm in International Corporate Acquisitions