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Greenfield vs. Acquisition/Merger

Greenfield vs. Acquisition/Merger. Greenfield vs. Acquisition/merger. Foreign operations require bundling imported and local factors Greenfield: the MNE does most of the bundling Acquisition/Merger: the MNE buys an already mostly bundled package. Mode of entry. greenfield. acquisition.

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Greenfield vs. Acquisition/Merger

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  1. Greenfield vs. Acquisition/Merger

  2. Greenfield vs. Acquisition/merger Foreign operations require bundling imported and local factors Greenfield: the MNE does most of the bundling Acquisition/Merger: the MNE buys an already mostly bundled package

  3. Mode of entry greenfield acquisition Greenfield Equity Joint Venture Partial acquisition shared ownership Greenfield Wholly-owned subsidiary Full acquisition full

  4. Factors that affect the choice greenfield vs. acquisition • Match between MNE and local assets to be bundled • Degree of integration desired • growth rate of target market • Managerial resources of foreign investor • Risk aversion of foreign investor • Availability of targets • Legal restrictions

  5. Factors that are usually bundled within firms • Trademarks • Relationships with customers • Relationships with governments • Company culture • Tacit know how

  6. 1. Match between MNE and local assets • Are those factors valuable? • Are those factors hard to acquire in unbundled form? • Can those factors be bundled with MNE factors?

  7. Is it efficient to bundle MNE factors with those of a local firm? • MNE competitive advantage is in marketing or management • MNE competitive advantage is in human or technological processes

  8. Greenfield vs. Acquisition Greenfield + = Acquisition + =

  9. Change in Equity Price of Acquirer One Year after Acquisition for 107 Cross Border Deals, 1996-1998 Source: KPMG

  10. Most acquisitions are ultimately divested (Source: Porter)

  11. Acquisition challenges a. Acquisition process b. Post-acquisition integration

  12. a. Acquisition process • Choosing the right target • Paying the right price • Dealing with stakeholders (unions, government, media)

  13. Acquisition process 1. Time pressure 2. Limited information 3. Lack of overall vision 4. Danger of escalating commitment (winner’s curse)

  14. 1. Time Pressures in the Pre-Acquisitive Decision-Making Process Theory Strategic evaluation Financial evaluation Acquisition objectives Acquisitive search Negotiation Reality (in most cases) Acquisition objectives Strategic evaluation Acquisition opportunity Financial evaluation Negotiation

  15. 2. Limited information International accounting differences Consolidation Extra-ordinary items Provisions Other undisclosed items Environmental exposure Other undisclosed liabilities

  16. In perspectiveDaimler-Benz’s net profit/loss; DM bn Sources: Extel Financial; Company reports

  17. b. Post-acquisition integration Level of integration should match expected benefits • Strategic (pre-empt competitors) • Bargaining gains (market power, purchasing economies) • Scale and scope economies (reputation, know-how, distribution) • Skill transfer

  18. Need for Strategic Interdependence Low High High Preservation Symbiosis Need for Organizational Autonomy Low [Holding] Absorption Types of Acquisition Integration Approaches

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