Mergers & Acquisitions
Veronika Hermann
Claudia Kaufmann
Hanna Weinzinger
Contents
• Introduction
• Basic Terms
• Situation in Europe
• Theory of Acquisitions
• Choice between Greenfield & Acquisitions
• Clusters
• Case Study
What is a merger?
A merger occurs when one corporation is
combined with and disappears into
another corporation
Federal Trade Commission
• Vertical merger
• Horizontal merger
• Product extension merger
• Market extension merger
• Conglomerate merger
What is a corporate acquisition?
A corporate acquisition is the process by
which the shares or assets of a
corporation come to be owned by a buyer
• Asset deal
• Share deal
Situation in Europe
• Mostly strategic alliances
• International trend towards acquisitions
Situation in Europe
Differences between alliances on the one
hand and mergers and acquisitions on the
other hand:
• Consensual decision-making
• Transient nature and reversibility of
alliances
Situation in Europe
What should the European firms do?
• More offensive strategy
• Transfer of know-how and skills
 Complementary alliances
Strategically unrelated firms
NPV(A+B)=NPV(A)+NPV(B)
• Normal economic profit
• Not economically viable
Strategically related firms
NPV(A+B)>NPV(A)+NPV(B)
• Above-normal economic profits: target
firm
• Normal economic profits: bidding firm
• Economically viable
Why are there so many M&A?
• Ensuring survival
• Free cash flow
• Agency problems
• Managerial hubris
• The potential for above-normal profits
Rules for Bidding Firm Managers
• Search for rare synergies
• Keep information away from other bidders
• Keep information away from targets
• Avoid winning bidding wars
• Close the deal quickly
Rules for Target Firm Managers
• Seek information from bidders
• Invite other bidders to join the bidding
competition
• Delay but do not stop the acquisition
Organizing a merged
organization
• Postacquisition coordination and
integration
• Problem: operational, functional, strategic
and cultural differences
 additional costs
Choice of entry mode
greenfield vs. acquisition
• Transaction Cost Theory
• Theory of Mergers and Acquisitions (Oster, 1990)
• Theory of the Growth of the Firm (Edith Penrose,
1959)
• Capital Market Imperfections (Chatterjee, 1990)
Transaction Cost Theory
• cost structure of entry modes
• locating facilities abroad more efficient
than exporting
• choice between greenfield and acquisition
• firm specific advantages (superior
organizational or technical ability)
Transaction Cost Theory
• high R&D intensity – greenfield investment
• little knowledge of foreign market –
acquisition
• high diversification – acquisition
Mergers and Acquisition Theory
Oster (1990)
• two reason to prefer acquisition vs.
greenfield
• value of assets acquired lower than
replacement cost
• possibility to leverage firm specific
advantage more efficiently
Mergers and Acquisitions Theory
• strong value of HC vs. FC – acquisition
• lower stock market prices abroad – acqui
• acquiring rivals – less competition
• speedy entry via acquisition
• little knowledge of foreign culture – acqui
• high concentration of target industry –
acqui
Theory of the Growth of the Firm
Penrose (1959)
• low endowment in Human Resources –
acquisition
• high size of subsidiary realtive to
headquarter - acquisitions
Capital Market Imperfections
Chatterjee (1990)
• high grade of leverage – acquisition
• greenfield more expensive than acquisition
Entry Mode Choice & International
Strategy
• global strategy
• multidomestic strategy
• transnational strategy
• international strategy
Entry Mode Choice & International
Strategy
• global firms (cheap production in few
locations, same marketing
strategy/products everywhere) –
greenfield
• Multidomestic firm (locally adequate
products & marketing strategy, production
& R&D in every market) - acquisition
Relationship headquarter subsidiaries
• greenfield higher level of control over
subsidiaries than acquisition
• greenfield more expatriates than
acquisition
• acquisition higher level of local
responsiveness than greenfield
• Over time headquarter – subsidiary
relationship will converge towards
preferred entry mode
Synergy Realization of Mergers and
Acquis
• an integrative model
• combination potential
• organizational integration
• empolyee resistance
• synergy realization
An integrative Merger and Acquisition Model
Combination
potential
+
Synergy
realization
+
-
+
Organizational
integration
+
+
Employee
resistance
Synergy Realization of Mergers and
Acquis
• great management style similarities = great
•
•
organizational integration = little empolyee
resistance
cross border M&As, combination potential (+),
organizational integration (-), empolyee
resistance (+)
great size of target relative to bidder = great
combination potential = great organizational
integration
Case Study
Introduction
1.
2.
3.
4.
5.
6.
Company and group
History
Organizational Structure
Divisions
M&A Process
M&A-Practical Experiences
Who is Mondi Packaging?
• Mondi: international, integrated forest
•
products and packaging group
manufactures a range of products
including: Pulp, Graphic papers, Packaging
papers, Converted packaging (including
corrugated board), Solid wood products,
Wood chip.
History
• 1997-1998: acquisition of the group`s first 2 plants in Poland
• 1999: acquisition from Amcor Fibre Packaging Europe of 21 plants in the
•
•
•
•
UK and France
2001: acquisition from Danisco UK of 16 plants and 2 paper mills
2001-2002: Acquisition of 2 sheet plants in Ireland
2002: Acquisition of 8 plants in France and the UK through the joint
purchase of La Rochette with Saica, as well as the acquisition of an
additional plant in the UK and in Poland.
2004 : Acquisition of 10 plants and 5 paper mills in Austria, Germany,
Poland, Switzerland, Italy, Belgium and China through a merger with the
Roman Bauernfeind Group.
Organizational Structure
Divisions
•
•
•
•
•
Paper Division
Corrugated Division
Bag Division
Flexibles Division
Coating Division
M&A Process
1.
2.
3.
4.
5.
6.
Sourcing
Due Diligence
Valuation
Negotiation
Contract
Closing
Case Study
• Interview with Mr. Stürzenbecher,
•
1.
2.
3.
responsable for M&A
criteria to search for acquisitions:
Customers
Machines`quality
Company`s organisation
Case Study
•
1.
2.
3.
Places to gain market shares
China
India
Arabic countries
Problems
• Different cultures
• Different strategies
• Different aims
• Different languages
Solutions
• Expatriates
• Integration
• Meetings, seminars-> to get to know the
foreign working colleagues
THANK YOU FOR PAYING
ATTENTION
Hermann
Kaufmann
Weinzinger