International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CHAPTER 21

Cross-Border Mergers and Acquisitions

The price of pig

Is something big,

Because its corn, you'll understand,

Is high-priced too, because it grew

Upon the high-priced farming land.

If you don't know why that land is high,

Consider this: its price is big

Because it pays thereon to raise

The costly corn, the high-priced pig.

H. J. Davenport

International acquisitions are a relatively easy and fast mode of foreign market entry. Globalization, buttressed by deregulation, lower entry barriers, and privatization, has fueled cross-border mergers and acquisitions (M&A). Walmart, for instance, just completed the acquisition of Massmart as a mode of entering the South African market. Ciments Lafarge—the world leader in cement and construction materials—was recently reviewing the acquisition of state-owned Hoang Thach Cement in Vietnam.

But there is another dimension to mergers and acquisitions in industries that have become global oligopolies: Global players merge with or acquire other global players rather than local players. Witness the hyperactivity of M&A in the automotive industry—not always bearing fruit! DaimlerChrysler stands as the worst-ever cross-border merger (1998). General Motors' acquisition of Swedish Saab (1990) or Ford's takeover of Jaguar (1989) did not fare much better. But Renault's bold purchase of Nissan (1999) is generally hailed as a success. Tata Motors' outright takeover of Jaguar Land Rover in 2008 has already turned the corner of profitability. Fiat's ...