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Course        BUSI1410: Strategy & Transformation(MBA)            Course School/Level        BU/PG
Coursework    Strategy and Transformation Portfolio               Assessment Weight         40.00%
Tutor         Y Kim                                               Submission Deadline    09/03/2009



Coursework is receipted on the understanding that it is the student's own work and that it has not,
in whole or part, been presented elsewhere for assessment. Where material has been used from
other sources it has been properly acknowledged in accordance with the University's Regulations
regarding Cheating and Plagiarism.



000525874
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                                        Mergers
               “Marriage of two lame ducks will not give birth to a race horse.”



Introduction

RENAULT-NISSAN successful comeback was the result of a strategic technique named
Merger between two unfamiliar companies, which is taken as my portfolio theory. Even
since twentieth century, this theory helped various organisations to regain or multiply their
strength. To define- It’s the strategic way to combine two different entities with the motive of
financial strength and stability, by buying, selling and joining without forming any new
concern. Being very vast and diverse theory, our main focus would be at its operation in
cross border mergers along with looking at its application and overall critique followed by
the conclusion.

Cross Border Mergers

The search for globalization in last few years has given re-emergence to these worldwide
competitive techniques. In easy words- Legal unification or when two firms gives consent for
combined work for one single entity name. Deregulation, privatization and corporate
restructuring trends always moved hands in hands with mergers and acquisition, but since last
two decades only handful of these activities are successful. Mergers initially require planning
for strategic benefits because most of the international mergers deals are done in difficulties
during integration stage. They are broadly classified into three categories-

   a. Horizontal mergers
      Same market entities when joined together to reduce competition and capture wide
      customer coverage. On a contrary, this affects the market only if done on a large
      scale, contributing a significant part to the market share.
   b. Vertical mergers
      To control the supply business, merging of entity with the distributor. It even shuts
      door for the new competitor to enter the specific market.
   c. Conglomerate mergers
      Unification of two different companies with no similar interest or working
      environment, joined together to make presence in two different global markets for
      strengthening their multi industry reach.

Advantages

Some benefits related to cross border mergers are-

   a. Lower average cost
      Higher the output, lower the cost. Large firms with huge input potential can reduce
      their output cost significantly. A big concern enjoys better interest rates leading to
      bulk buying on lower prices.
   b. International reach
      International coverage leads to safeguarding themselves in front of Multi-national
      Corporations.
   c. Research & Development
      Two different entities excel in different operational areas and combination of their
      knowledge along with technical knowhow, investment in R & D can lead to their
      enhanced sales. This can even help in enhancing quality of goods for the consumers.
   d. Efficient
      With proper strategic planning and consideration of lacking aspects can be mended
      for smooth and better functioning, leading to more efficiency along with scrutinizing
      the best person for the best job.
   e. Reduced competition
      It helps in lowering the rate of competition in the existing market, which leads to
      growth for both the firms indulged.
   f. Surplus money
      Amalgamation forms combined asset structure, which usually results in surplus
      money, which can be invested into new potential prospects available in the market.

Criticism

As we all know, past work as the parameter for future and records tell that plenty of cross
border mergers don’t work. In international mergers some of the biggest flaws that came
under light are cultural differences along with lack of market synergies. At core level
management and staff relates to output and performance and due to diversity- communication
and understanding differences can adversely affects on the output. Most of the mergers have
an idea, to survive longer being a big player in competitive world but managers at top level
concentrate only on cost cutting in most mergers rather than day to day business.

Sometimes authority delegation creates a hurdle for the management decisions, which affects
adversely. Due to different thoughts and ethics, It creates a mess often in two different
cultured organisation.

In short we can say, a corporate culture in cross cultural merger can be affected by the
following-

      Values of the organisation.
      Management style and culture.
      In depth stories related to the companies.
      Organisational ethics.
      Cultural symbols.

Cross border merger application.

Besides claiming limitations cross cultural mergers can be effectively used in many existing
and new organisations by keeping under mentioned points in mind-

    Interaction & co-ordination
     Free flow interaction with in management and less number of decision makers should
     be there to enhance interaction and co-ordination at all levels. Supplier’s co-
     ordination with operational units at should also be considered for smooth functioning.
    Strategic potential
     Pre merger planning should ascertain the preset requirement; need to be achieved
     along with potential for future goodwill and growth prospects. Due importance should
     be given in the weak areas of every individual company and the expected remedy, by
     merger technique leading to fulfilment of the goal.
    Reduced Uncertainty
     International mergers should be planned by having due concern for uncertainties like
     competition, lack of market knowledge, changing trends etc. This helps in giving the
     merged concern stability and upliftment in the economic world.
    Value creation
     Mergers are not always meant with difficulties. It takes place even in course for huge
     market for being an undisputed leader with main perspective of high value creation to
     beat the irregularities in the present and the upcoming market. It is often done within
     huge and lavish brands of market such as ARCELOR-MITTAL.

Conclusion

After looking at both sides of the coin of cross border merger, threats and potential
opportunities always exists but with regards to proper analysis and planning before entering
into merger, the probabilities can be enhanced for making it work in an efficient way-

       Strategy building in pre-merger phase for cultural acceptance.
       Directing communication and ethics towards overall accomplishment of goal.
       One’s weak aspect should be other’s strength.
       Bridging gap with co-operation.
       Being patient to accept other’s overview.

Future of cross border mergers

With recession at present, companies indulging in mergers will safeguard themselves from
the threat of maintaining high operating cost and low liquidity at present in credit crunch. It
will help the merged entities to improve their financial viability in the post recession period.

Reference

“Marriage of two lame ducks will not give birth to a race horse.”
http://www.legalserviceindia.com/article/print.asp?id=80 (Accessed on March 16’ 2009).

Bibliography

Fairburn, J., Kay, J. (1989) Mergers & Merger Policy
http://books.google.com/books?id=w1O4MbKm08oC&printsec=frontcover&dq=mergers&v
q=%22Mergers%22&source=gbs_book_citations_r&cad=1_0#PPP1,M1 (Accessed on
March 12’ 2009).

http://www.deloitte.com/dtt/section_node/0,1042,sid%253D27760,00.html (Accessed on
March 12’ 2009).

http://mba.tuck.dartmouth.edu/pages/faculty/syd.finkelstein/articles/Cross_Border.pdf
(Accessed on March 12’ 2009).

http://law.jrank.org/pages/8543/Mergers-Acquisitions-Types-Mergers.html (Accessed on
March 12’ 2009).

http://www.learnmergers.com/ (Accessed on March 12’ 2009).

http://www.wisegeek.com/what-is-a-conglomerate-merger.htm (Accessed on March 12’
2009).

http://www.investopedia.com/university/mergers/mergers5.asp (Accessed on March 12’
2009).



Neeraj Jaura

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