Companies with successful products in one national

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Companies with successful products in one national market may seek cross-border acquisitions. o To achieve greater revenues and profits rather than lower returns in already established market Is risk-adjusted return from the deal greater than nex best use of invested capital? European common market rise in europe cross-border deals. Certain Asian markets resist foreign acquirers. Exchange rates plays a big role o Buyer can pay higher premium if its currency appreciates relative to that of the target 1970-1987 foreign acquirers paid 10% premium
acquirers enjoyed positive returns when they acquired targets in countries they did not have operations. Return negative when acquirer already had operation in these foreign countries. Research: non-US firm buys US firm. Us firm buys Non-US firm. o Non-US firm buyer 2% return over ten-day window o Us firm buyer negative return Moeller & Schlingemann: analyzed 4,430 deals and found out Us firm has better return when buying another us firm. Synergy Phenomenon 2+2=5 Allow combined firm to appear to have a positive: o Net acquisition Value (NAV) NAV=[Vab-(Va+Vb)]-P-E Vab= combined balue of the 2 firms Va= Value of firm A Vb+ Value of firm B P= Premium paid for B E= Expenses of the acquisition process [Vab-(Va+Vb)] > P+E to justify going forward with merger Elimination of inefficient management Operating synergy: revenue enhancement and cost reductions Financial synergy possibility that cost of capital may be lowered by combining one or more companies
Operating synergy: Revenue enhancements & cost reductions Revenue enhancement o Sharing marketing opp. By cross-mrk each merger partner’s products. o Economies of scope: Being able to offer a wider range of services or products to same customers i.e. commercial bank with major retail network acquiring a bank with strong trust department o example: company with a strong distribution network merging with a firm that has products of great potential but questionable ability to get them to the market before rivals can react and seize the period of opp. o Difficult to quantify o Hard to predict Cost-reducing operating synergies o Economies of scale: declining per unit cost as output rises. May only last within a certain range of output; beyond this, diseconomies of scale are possible Mgmt time, skillset, and utilization rate of assets are considerations here o Main source of op. synergies o Increase in size or scale of firm o Spreading overhead o o o o
o o o o o o o o o o o this shows that an optimal output level occurs when per-unit costs are at a minimum. This implies that an expansion through the horizontal acquisition of a competitor may increase the size of the acquiring firm’s operation and lower per-unit cost banking M&A o Track record good o Benefit of offering national/int. bank o Poorer customer service???? Example of achieved cost economy synergies o Exxon Mobil: Announced in August 2000 that it expected $4.6 billion in cost savings from its megamerger Merger: December 1998--$82 billion

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