assessment of all perspectives.
SUMMARY AND IMPLICATIONS FOR THE PRACTITIONER
This chapter has argued that the M&A practitioner should widen his or her frame of reference to embrace the global market. The volume of cross-border M&A is large, and, if present trends of market integration continue, will get larger. Research suggests that foreign buyers pay more, creating a natural incentive for target shareholders to entertain offers from across borders. Certainly, the drivers of M&A outlined in this chapter echo the drivers of domestic M&A: Chapter 4 portrayed market turbulence as the primary driver. If anything, the cross-border arena displays more turbulence.
Cross-border M&A activity and its drivers pose some important implications for the practitioner.
Get a view about countries and regions. In the turbulent world arena, perhaps the worst stance is to be myopic, naive, and uninformed. This chapter gave a rough sketch of four perspectives that can aggregate to a view: macroeconomic, microeconomic, institutional, and cultural. These perspectives are not easily given to a checklist of data to acquire or analysis to do. Country analysis is a process of diagnosis (like medicine) rather than design (like engineering). Skills of investigation and reflection are important foundations for cross-border M&A.EXHIBIT 5.12 Country Analysis Based on Four Perspectives
Consider local and global turbulence and how it changes competition across borders. Attend to the sources of turbulence and its impacts—insights about these will spring from analysis of countries and regions. But one can also look to the well-known sources (technological innovation, deregulation, trade liberalization, demographic change, and market integration) and study their impacts on countries. Of special interest are “inflection points” or changes in economic or competitive conditions that may generate special investment opportunities. Also consider that turbulence usually has an asymmetric impact across countries—M&A can afford one form of arbitrage across these asymmetries.
Anticipate the reaction of competitors. Global market integration will admit new competitors to country arenas. But to the extent that trade blocs may restrict the entry of outsiders into your market, it becomes extremely important to anticipate the competitive actions and reactions of competitors. It is reasonable to assume that competitors within, and outside of, the bloc recognize both the effects of turbulence and the associated asymmetries.
Anticipate the reaction of investors. A mental trap of cross-border M&A is business imperialism, the view that your firm must “own” a place in a foreign market simply for its own sake. Under this view, the decision maker is distracted from a fundamental aim of capitalist enterprise, to create value for investors. The rise of sophisticated global financial intermediaries such as banks, mutual funds, and pension funds creates vocal investors who focus on value creation. The implication is that the logic of value creation will assume greater, not less, importance in accessing capital with which to finance M&A activities.
NOTES
1 1. In theory, the value of outbound M&A from the United States should not exceed outbound foreign direct investment. A close comparison of the exhibit will show that in some years this is not true. Most likely this anomaly is due to differences in the timing and value of flows of the two different series of information. But the qualitative point remains that M&A accounts for the bulk of foreign direct investment into and out of the United States.
2 2. A discussion of the UNCTAD finding is given in Dunning (1998). This is consistent with the findings of Pereiro (1998), who found that acquisitions account for 52 percent of all private foreign direct investment in Argentina from 1991 to 1997.
3 3. This is the thesis of Bleeke and Ernst (1996), who argue that many strategic alliances are de facto sales. Their clinical research on joint ventures and alliances revealed that many were founded on a belief that the business unit could not survive alone and, in effect, required at least partial ownership by an ally. They noted that frequently these partnerings end in a complete sale of the unit by the former parent.
4 4. Conn and Nielsen (1990) found that horizontal and vertical acquisitions represent 60 percent of deals for U.S. acquirers and 70 percent of deals for U.K. acquirers. Eun et al. (1996) found that 75 percent of foreign firms acquiring into the United States were buying into related businesses.
5 5. Conn and Nielsen (1990) found that 97 percent of U.S. acquirers and 93 percent of U.K. acquirers paid with cash. Ceneboyan et al. (1992) found that foreign buyers into the United States favored cash deals (85 percent), compared to 46 percent for domestic U.S. buyers.
6 6. Euroland includes 11 countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain), which adopted the euro as a common currency on January 1, 1999. Within the European Community, other agreements commit members to open borders and to the alignment of tax and regulatory policies. The North American Free Trade Agreement (NAFTA) embraces Canada, Mexico, and the United States with reductions in trade barriers and tariffs.
7 7. Hostile bids contemporaneous with the formation of the EMU included:Olivetti’s hostile bid for the leading Italian telecommunications firm, Telecom Italia, the sixth-largest telephone company in the world. Olivetti’s financial advisers were Italy’s Mediobanca and three American firms: Donaldson, Lufkin & Jenrette; Lehman Brothers; and Chase Bank. Instituto Mobiliare Italiana and three American firms advised Telecom Italia: J. P. Morgan, CS First Boston, and Lazard. Olivetti’s bid was denominated in euros and would be financed by the issuance of a “megabond” on the euro capital markets worth $15 billion.Luxury-goods manufacturer LVMH Moet Hennessey Louis Vuitton’s “creeping takeover” of Gucci. This contest featured a variety of legal maneuvers and antitakeover defenses.Banque Nationale de Paris’ hostile bid for both Societe Generale and Paribas, which would create the largest financial institution in the world, with assets of more than $1 trillion. In the outcome, BNP successfully acquired Paribas and a one-third interest in Societe Generale.North America witnessed hostile transactions across NAFTA members that might not have been possible before the formation of the trading bloc:In 1999, Grupo Mexico successfully mounted an unsolicited offer for the U.S. copper producer Asarco, snatching the target from the U.S. bidder, Phelps Dodge.American Airlines and Onex, a U.S. private equity investment firm, made an unsolicited offer for Air Canada.
8 8. See Vernon (1974), Kindleberger (1969), Caves (1971), Buckley and Casson (1976), Magee (1976), and Dunning (1988).
9 9. See Caves (1971) and Magee (1976).
10 10. For discussions about global tax arbitrage by corporations, see Lessard (1985), Lessard and Shapiro (1983), and Rutenberg (1985).
11 11. Harris and Ravenscraft (1991) found that changes in U.S. tax laws are not related to cross-border acquisition returns. Dewenter (1995)
