Mergers and Acquisitions Since the 1980's, and even more now in the late nineties, it has become a

growing trend for companies, both large and small, domestic and foreign, to form strategic alliances
within their particular industries. There are many specific goals that companies may be looking to
achieve by dong this, but the main underlying reason is to guarantee the long-term sustained
achievement of fast profitable growth for their business. They have to keep up with a rapidly increasing
diversified global market and increased competition. Nowadays, with the struggle for competitive
advantage becoming stronger and stronger, it is almost essential to form alliances. Diversifying and
expanding techniques such as mergers and acquisitions are very popular methods for forming these
alliances. Basically stated, a merger is a joining of forces and acquisition is a purchase of a company,
whether it is welcome or hostile. The two terms are often used interchangeably. Much research and
planning is required in the early stages of these processes, which starts with an acquisition strategy used
in trying to find a suitable company to merge with. Advantages and disadvantages of the merger must
be thought out, as well as many other important aspects, such as risk factors and new organizational
structures that must be considered and closely monitored throughout all of the stages of the merger or
acquisition. It is of these competitive strategies, mergers and acquisitions, as well as a recent case study
following the conclusion, that will be the focus of my paper. Before going further into the merger and
acquisition process, a more complete explanation is necessary. A merger is the combining of two or
more companies into a single corporation. This is achieved when one company or business purchases
the property or some other form of assets from another company. The result of this action is the
formation of one corporate structure. This new corporate structure retains its original identity. An
acquisition is a little different from a merger in that it involves many problems being dissolved, and an
entirely new company being formed. There are different ways for a merger or acquisition to take place.
One obvious method involves the purchasing business making an absolute payment in cash or in
company stock. Other arrangements may be made such as the exchange of bonds. After the purchase
has been made, the purchaser acquires the assets and liabilities of the other firm. There are two main
types of mergers; horizontal and vertical. A horizontal merger or acquisition combines firms that
competed with one another at the same stage of production into a single new firm. These mergers
usually involve basic commodities. A vertical merger, which is more common in producer-goods
industries, takes the entire production process, from raw materials to the end finished product, and
combines them together under single ownership. Throughout history, certain mergers and acquisitions
have influenced modern international finance. In the late 1800's, merger and acquisition techniques
were being abused and monopolies were starting to emerge. This led to the creation of The Sherman
Antitrust Act, which made monopolies illegal. More recently, large mergers and the birth of new
markets around the globe have affected international finance. When two major corporations merge
they form a company with a very large amount of economical and political power. This has led to issues
that deal with ethics and social responsibility (Hirsch 15). Now we contemplate the first important
question: Why merge or acquire? As stated earlier, the overall goal is to ensure future stability and
growth in the market. But more specifically, each company has individual goals that it hopes to achieve.
Many times mergers are completed to save a failing business. Others reasons for mergers include
reduced competition and/or product diversification. These goals are closely related to the possible
advantages of mergers and acquisitions, and of course, in the case of all risks, there are possible
disadvantages as well. Many of the advantages have to do with forming unique research and
development skills. One major advantage is that a merger would give a company the opportunity to
expand by establishing their presence in a host country. This invites the company to compete in other
markets. Another possible goal or advantage is being able to adopt technology from the other business
rather than spending the time and money to develop it themselves. In the long run, this would cut costs
and improve productivity. Economies of scale and scope can be gained with a larger base and with this
increased size come many competitive advantages (Eiteman 482). A successful merger or acquisition
may very well allow a business to reduce its foreign exchange operating exposure by servicing a market
with local manufacturing rather than through imports (Eiteman 483). Some businesses merge to help
alleviate some or all of their debts (debts that will be taken over by the merging company) in hopes of
getting the chance to start over. Later in my report I will be discussing a cross-cultural merger, therefore,
the disadvantages I am about to discuss relate to cross-border mergers. One major problem that may be
incurred is cultural differences between the two businesses. This may lead to tension, conflict, and
stresses between the organizations, namely its employees, lessening the chances of a smooth merger.
Many times teams are designed to deal with any possible conflicts that may arise as a result of the
differences in customs, values, and norms. In a few cases, there are negative political reactions from the
unfavorable host countries. When the possible disadvantages occur, and these outweigh the benefits of
the merger, it is possible that the merger be classified as a failure. Failures could be a result of bad
planning, lack of leadership, unrealistic expectations, and/or inadequate due diligence. A more recent
definition of this describes poor returns to shareholders or a self-assessment that the company wouldn't
repeat the deal (McVinney 11). Failure rates stagger, ranging between 16% and 80%, depending on the
approach used to determine it. So now that a solid foundation has been laid, the next question that
needs to be answered is: So what steps do businesses actually take when embarking upon a merger?
The ten steps, in order, are: 1) Formation of an acquisition strategy. 2) Defining the Acquisition Criteria
3) Searching for a Target 4) Acquisition Planning 5) Valuing and Evaluating 6) Negotiating 7) Due
Diligence 8) Purchase and Sale Contact 9) Financing 10) Implementation A closer investigation of the
steps is important in obtaining a better understanding of the actual merger and acquisition process. The
first step is putting together an acquisition strategy and the second step is putting together the
acquisition criteria. These two steps are closely related. When thinking about acquisition criteria,
management answers the question, why buy? Possible answers include to increase market share,
broaden their product range, and to diversify by entering into new markets. The third step is searching
for the target. Things that a corporation considers are particular business areas, products and services
desired. The buying corporation does research to find out all about the target company. This research is
done by making telephone contact, correspondence and by speaking with third parties (notes). If things
are looking good, a meeting between the two corporations will be arranged. Next comes acquisition
planning, the fourth step in the process. In planning, top management must consider location, price
range, profitability, return on capital employee, and image compatibility. A very important factor taken
into consideration at this time is the scope of integration. It is important to examine this factor because
it could lead to failure. Step five is valuing and evaluation. This involves setting a value and evaluating
the potential company. The value is determined by examining the historical nature of accounts, assets,
and by referring to the Stoy Hayward Quarterly Index. Step 6 is when the negotiating begins. There are
thoughts of sources and methods of funding the business such as internal and external sources of funds.
Step 7, Due Diligence, refers to the management of the acquisition. At this point there is a space
between the two firms while the overall purchase plan is reviewed. The most important step may very
well be step 8, actively managing the acquisition. This involves the purchase and sale contract, but it also
involves the actions plan. Decisions have to be made about how the company is to be run. Topics such
as authority, responsibilities, and roles must all be defined. This, along with the implementation of any
new ways, will require extensive communication. A major problem that must be addressed at this point
is integrating corporate systems, structures, and cultures. This is one of the most complex challenges,
especially when dealing with cross-cultural mergers. Problems arise because, not everyone wants to
adopt someone else's way of doing business. And when you start to form a third culture out of the fabric
two equally strong companies, the task is enormous, especially if your trying to maintain high
performance in the marketplace at the same time (Leonard). To deal with any problems, special task-
oriented teams are organized who will specialize in this area. Step 9 deals with financing and finally, the
tenth and final step in the successful acquisition process is the actual implementation of your plan as a
company. When the steps are followed and everything goes as planned, the result is a successful
merger. There will be good operating and market synergy between the buyer and seller, and the newly
merged companies will understand the importance of sharing eachothers capital, markets, and
technology. After researching mergers and acquisitions, I have come to understand the importance of
these two growth strategies. Today's business environment is being dominated by mergers and fast
growth. In order be a player in the highly competitive markets, expansion of firms is necessary. It is
almost impossible to achieve high profitability all alone. This growth is achieved through new product
development, acquisition of new plants and more machinery, and business development activities.
Firms are merging due to pressures from their competitors. Corporations today must understand the
financial and technological difficulties as well as the complex problems associated with the actual
interaction of peoples and plans when participating in mergers, and they must strive to execute all of
their plans to their maximum potential.

CASE STUDY
Renault and Nissan join forces to achieve profitable growth for both
companies…
On Saturday, March 27th, it was announced that Renault, a French car manufacturer, would be
teaming up with Nissan Motor Corporation in a $5.4 billion deal that created the world's fourth
largest automaker. This deal gives Renault a 36.8% stake in Nissan, a company that has been
struggling financially for the past few years. The $5.4 billion deal between Renault and Nissan hands
over effective control to the French automaker in exchange for badly needed cash (Wwodruf). There
are other agreements within the contract, but they will not be discussed in much detail at this time.
Both of these corporations plan on benefiting from the merger. This alliance will resolve Nissans very
substantial financial problems. Renault will be given the opportunity to join the automotive big
leagues at a time of global expansion in the auto industry (Marks). Market expansion will be possible
because Nissan is strong in Japan, Taiwan, Thailand and North America- markets where Renault has
no presence. On the other hand, Renault is one of the top marketers in Europe, while Nissan is just a
small player. Nissan is strong in trucks and luxury cars, and Renault is strong in small, mass-market
cars. Even though the deal sounds great, it does not come risk-free. Many skeptics believe that the
teaming up of two struggling automakers will not result in profitability or flourishing. Renault is
taking a risk because it has just recently begun being profitable, and the company may not yet be
stable or strong enough to save Nissan from its great debts. Just as any proper merger should have,
Renault-Nissan has already disclosed some of their strategies for achieving a smooth merger. Renault
is counting on its expertise in cost-cutting to turn Nissan around. This expert team is going to be led by
Renault executive VP Carlos Ghosn. The rest of the team consists of 40 Renault managers who will be
responsible for helping Nissan improve efficiency and reduce spending (Marks). The new joint venture
will be led by a global alliance committee of top managers from each company. Since there will be a
clash of cultures, Ghosn's task may not be easy. His techniques of cost cutting are exactly what Japan
is against. Many other teams have been formed as well. Eleven Cross Company Teams will be
assigned the task of promoting all possible synergies to be implemented by each of the partners
(Renault 2). Each team will be in charge of something different, from product planning and strategy to
purchasing and logistics. As a result of the merger between Renault and Nissan, they estimate they
will save $3.3 billion in 3 years. Sharing purchasing costs and auto platforms will be used to achieve
this. Renault-Nissan will now operate together in hopes of competing in a globally diversifed,
competitive automotive market.

Works Cited Eiteman, David K. Multinational Business Finance. Addison-Welsey, Co: Reading, MA, 1998.
Pp. 480-496. Hirsch, Jared Brett. Mergers and Acquisitions: A Different Perspective. Kimball Publishing:
New City, NY; 1996. Pp. 13-15, 18,19, 31-56. Leonard, Daniel R. Global Markets. Mergers and
Acquisitions. Shermerhorn Johnson Company: New York City, NY; 1997. Marks, B. Global Automotive
Report. Detroit News. 1999. Http://www.detnews.com/1999/autos.htm. (28 Mar. 1999). McVinney,
Michaels. A guide to mergers and acquisitions. 1998. http://www.michelsmcvinney.com (29 Mar. 1999).
Renault. The Agreement. 1999. Http://www.renault.com. (28 Mar 1999). Woodruf, David. Deals. Nissan,
Renault in $5.4 B Deal. CNNFN. 1999. Http://www.cnnfn.com/hotstories. (28 Mar 1999). Word Count:
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