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. Company and group

2. History
3. Organizational Structure
4. Divisions
5. M&A Process
6. 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. Sourcing
2. Due Diligence
3. Valuation
4. Negotiation
5. Contract
6. Closing
Case Study
• Interview with Mr. Stürzenbecher,
responsable for M&A
• criteria to search for acquisitions:
1. Customers
2. Machines`quality
3. Company`s organisation
Case Study
• Places to gain market shares
1. China
2. India
3. 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