Masaryk University

Faculty of Economics and Administration

Field of study: Business Management

MERGERS AND ACQUISITIONS BY MULTINATIONAL

FIRMS

Master Thesis

Thesis Supervisor: Author:

Ing. Bc. Sylva Žáková Talpová, Ph.D. Bc. Luis E. Marquez Balderas, B.A.

Brno, 2019
MUNI MASARYKOVA UNIVERZITA
Faculty of Economics and Administration
Lipová 41a, 602 00 Brno

ECON
IČ: 00216224
DIČ: CZ00216224

Master's
thesis description
Academic year: 2019/2020

Student: Bc. Luis Eduardo Márquez Balderas, B.A.

Field of Study:
Title of the thesis/dissertation:
Title of the thesis in English:
Thesis objective, procedure and methods used:
Extent of graphics-related work:
Extent of thesis without supplements:
Literature:
Thesis supervisor:
Thesis supervisor’s department:
Business Management (Eng.)
Acquisition in a multinational enterprise
Acquisition in a multinational enterprise
Aim of the thesis: The aim of the thesis is to analyze an acqui-
sition of a company by MNE. Procedure and techniques used:
The thesis will consist of two parts. Theoretical part will be de-
voted to introduction and discussion of concepts and methods
that will be used in the practical part in order to achieve the
goal of the thesis. In the practical part, these methods will be
applied to a real MNE. Specifically, it will critically assess the
acquisition (student can choose a particular area, e.g. changes
in organizational structure, etc. and formulate
recommendations for the company.
According to thesis supervisor’s instructions
60 – 80 pages
LUTHANS, F. and J. DOH. International Management: Culture,
Strategy, and Behavior. 7th ed. New York: McGraw-Hill/Irwin,
2008. 640 s. ISBN 0-07-338119-5.
MEAD, Richard. International management: cross-cultural
dimensions. 1st ed. Cambridge: Blackwell, 1994. xvii, 525.
ISBN 0-631-18368-X.
DERESKY, Helen. International management: managing
across borders and cultures: text and cases. 7th ed., Internati-
onal ed. Boston: Pearson, 2011. 480 s. ISBN 9780132545556.
PHATAK, A. V. and R. BHAGAT S. International management
: managing in a diverse and dynamic global environment. 2nd
ed. Boston: McGraw-Hill/Irwin, 2009. 540 s. ISBN 978-0-07-
321057-5.
FERREIRA, Manuel Portugal, João Carvalho SANTOS, Mar-
tinho I.R. de ALMEIDA and Nuno Rosa REIS. Mergers &
acquisitions research: A bibliometric study of top strategy and
international business journals. Journal of Business Research,
2014, Volume 67, Issue 12, s. 2550-2558. ISSN 0148-2963.
Ing. Bc. Sylva Žáková Talpová, Ph.D.
Department of Corporate Economy
Thesis assignment date: 2018/11/01

The deadline for the submission of master’s thesis and uploading it into IS can be found in the academic
year calendar.

In Brno, date: 2020/01/07

Name and Surname of the author: Bc. Luis Eduardo Marquez Balderas, B.A.

Master’s thesis title: Mergers and Acquisitions by Multinational Firms

Department: Department of Corporate Economy

Master’s thesis supervisor: Ing. Bc. Sylva Žáková Talpová, Ph.D.

Master’s thesis date: 2020

Abstract

Research over the last few decades shows clearly that the rate of failures of mergers and
acquisitions is at least fifty percent. In a global survey of mergers and acquisitions that had taken
place over the last decade, Deloitte established that 83% of the transactions failed to achieve the
management’s desired goals. These findings suggest that senior managers and the board of
directors would avoid merger and acquisition transactions as much as possible. However, the
research shows that the trend in mergers and acquisitions has been increasing. Further, the value
of the money invested in the deals has been increasing. The aim of this thesis was to understand
the reasons why firms undertake mergers and acquisitions, the reasons for failure, and the remedial
actions taken to deal with the failure. The objectives of the thesis were achieved through a case
study of Cemex Cement Company which has an extensive history of mergers and acquisitions,
some of which ended in failure. Data for the study was collected through interviews with the senior
managers of Cemex. The reasons for mergers and acquisitions were found to include technological
considerations, entry into foreign markets, market power and efficiency gains, diversification,
investor demands, the emergence of multinationals, national economic trends, and economies of
scale and scope. The reasons for failure included stiff competition, financial crises, organisational
culture, overestimation of synergies, high energy costs, and complexities of operating in foreign
markets. The remedial actions undertaken to correct the failures include rebalancing of the
portfolio, enhanced sales, operational improvements, alternative energy sources, refinance
agreements, and improving organisational culture. The thesis established that for managers, the
probability of failure of the merger and acquisition is taken into consideration, however, the
potential benefits outweigh the fear of failure.

Keywords

Mergers, Acquisitions, Performance, Failures, Hubris, Pre-merger, Post-merger, Integration.

Declaration
I certify that I have written the master’s Thesis Mergers and Acquisitions by Multinational Firms
by myself under the supervision of Ing. Bc. Sylva Žáková Talpová, Ph.D., and I have listed all
the literary and other specialist sources in accordance with legal regulations, Masaryk University
internal regulations, and the internal procedural deeds of Masaryk University and the Faculty of
Economics and Administration.

Brno, …………………………...
Luis E. Marquez Balderas
Acknowledgement

I would like to express my sincerest thanks and appreciation to all the people who supported me
during the time of writing this thesis. I would especially like to thank my thesis supervisor Sylva
Žáková Talpová, for all her insight, guidelines, advice, and corrections. I would also like to express
gratitude to CEMEX S.A.B. de C.V for agreeing to participate in this thesis, and finally, but not
least, I would like to express my sincere gratitude to my family for supporting and encouraging me
throughout my whole studies in order to become better.
 Table of Contents
INTRODUCTION ......................................................................................................................... 1
1 MULTINATIONAL CORPORATIONS.................................................................................. 4
1.1 Multinational Corporation ..................................................................................................... 4
1.2 Theories of Multinational Firms ....................................................................................... 4
1.2.1 Macro-economic Theories.................................................................................................. 4
1.2.2 Micro-Theories ............................................................................................................... 6
2 MERGERS AND ACQUISITIONS .......................................................................................... 8
2.1 Definition of Mergers and Acquisitions............................................................................ 8
2.2 Reasons for Mergers and Acquisitions ................................................................................ 10
2.2.1 Synergy .................................................................................................................... 10
2.2.2 Agency Theory ........................................................................................................ 11
2.2.3 Value Creation ......................................................................................................... 12
2.2.4 Market Power........................................................................................................... 13
2.2.5 Efficiency Gains ...................................................................................................... 13
2.2.6 Economies of Scale and Scope ................................................................................ 14
2.2.7 Strategic Realignment .............................................................................................. 14
2.2.8 Diversification ......................................................................................................... 15
2.2.9 Reduction of Tax Liabilities .................................................................................... 16
2.3 Motives from the Sellers Perspectives ................................................................................. 17
2.4 Cross Border Mergers and Acquisitions from firms in Emerging Markets ......................... 17
2.5 Summary .............................................................................................................................. 18
3 PHASES AND PROCESS OF MERGERS AND ACQUISITIONS .................................... 19
3.1 Merger and Acquisition Process ..................................................................................... 19
3.2 Effect of the Merger and Acquisition Process on Outcome of the Deal ......................... 21
4 CHALLENGES AND REASONS FOR FAILURE OF MERGERS AND
ACQUISITIONS ....................................................................................................................... 22
4.1 Indicators of the Performance of the Merger and Acquisition ............................................ 22
4.2 Reasons for Failures of Mergers and Acquisitions .............................................................. 23
4.2.1 Hubris Hypothesis ........................................................................................................ 23
4.2.2 Managerial Discretion Hypothesis................................................................................ 24
4.2.3 Price Bubbles ................................................................................................................ 25
 4.2.4 Administrative Costs .................................................................................................... 26
4.2.5 Contagion and Capacity Effects ................................................................................... 26
4.2.6 Information Asymmetry ............................................................................................... 26
4.2.7 Lack of Common Vision .............................................................................................. 26
4.2.8 Rapid growth of Substitutes.......................................................................................... 27
4.2.9 Culture .......................................................................................................................... 27
4.2.10 Poorly Managed Integration ....................................................................................... 27
4.2.11 Managerial Challenges ............................................................................................... 28
4.2.12 Target Valuation Challenges ...................................................................................... 28
4.2.13 Synergy Realization Challenges ................................................................................. 29
4.3 Summary .............................................................................................................................. 29
5 RESEARCH APPROACH ...................................................................................................... 30
5.1 Conceptual Framework ........................................................................................................ 30
5.2 Research Approach .............................................................................................................. 30
5.2.1 Qualitative Versus Quantitative Research Approaches ........................................... 30
5.2.2 Case Study Qualitative Research Design ................................................................ 31
5.2.3 Data Collection Method ........................................................................................... 32
5.2.4 Interview Guide ....................................................................................................... 33
5.3 Location of the Study........................................................................................................... 34
5.4 Study Participants ................................................................................................................ 34
5.5 Ethical Considerations ......................................................................................................... 36
6 CEMEX ..................................................................................................................................... 37
6.1 About CEMEX .................................................................................................................... 37
6.2 Mergers and Acquisitions by Cemex ................................................................................... 38
7 FINDINGS ................................................................................................................................. 45
7.1 General Information............................................................................................................. 45
7.2 Mergers and Acquisitions Undertaken by Cemex ............................................................... 47
7.2.1 Reasons for Mergers and Acquisitions .................................................................... 47
7.2.2 Process for the Mergers and Acquisitions ............................................................... 51
7.2.3 Challenges Experienced During the Merger and Acquisition Process .................... 53
7.2.4 Reasons for Failure .................................................................................................. 55
7.2.5 Remedies for the Failures ........................................................................................ 61
8 DISCUSSIONS .......................................................................................................................... 65
8.1 Reasons for Mergers and Acquisitions ................................................................................ 65
8.2 Process of Mergers and Acquisitions................................................................................... 68
8.3 Factors that lead to the Failure of the Mergers and Acquisitions ........................................ 69
9 CONCLUSIONS AND RECOMMENDATIONS ................................................................. 72
9.1 Conclusions Based on Study Findings ................................................................................ 72
9.2 Recommendations................................................................................................................ 73
9.3 Contributions and Implications............................................................................................ 74
9.4 Limitations of the Study ...................................................................................................... 75
REFERENCES ............................................................................................................................ 76
LIST OF TABLES ....................................................................................................................... 89
LIST OF FIGURES ..................................................................................................................... 90
ABBREVEIATION AND ACRONMYS ................................................................................... 91
INTERVIEW GUIDE ................................................................................................................. 92
APPENDICES .............................................................................................................................. 93
Appendix1: List of Cemex Subsidiaries as at December 31st 2018 ........................................... 93
 INTRODUCTION
Globalisation has stimulated major changes in the business world over the past decade.
Companies have been searching for a competitive advantage on a worldwide scale. Companies are
forced to follow their customers- who are going global- as they respond to the competition that is
worldwide in scale. Globalisation in combination with other trends such as deregulation,
privatisation and corporate restructuring has spurred an unprecedented surge in cross-border
merger and acquisition activity. The recent figures in business clearly indicate that cross border
mergers and acquisitions have become a fundamental characteristic of the global business
landscape. Additionally, growing through M&A is one of the main ways in which multinational
firms seek to expand globally. Often, however, expectations outrun reality and the difficulties of
merging two companies are underestimated.
The motivation for mergers and acquisitions (M&As) has been the subject of numerous
research studies across the globe. The interest arises from the fact that empirical findings have
established that more than sixty-six percent of all M&A deals undertaken result in failure (Angwin,
2007; Groen & McCarthy, 2011; Hiltrop, 2019). Further, studies have shown that mergers and
acquisitions are motivated by various factors besides finances. Similarly, researchers have found
that more than sixty percent of mergers and acquisition motivated by factors besides profits, often
do not achieve their objectives (Denison, 2016). Despite the established failures, businesses across
the globe continue to undertake merger and acquisition transactions. The empirical evidence raises
the following questions:
(i) What are the reasons for mergers and acquisitions undertaken by Cemex?
(ii) What is the M&A process used by Cemex?
(iii) What are the challenges faced during the M&A process?
(iv) Which are the failures and the reasons for failure of the mergers and acquisitions
undertaken by Cemex?
(v) What are the remedies put in place by Cemex to deal with the failures?

A review of theoretical and empirical literature showed that there are various reasons why
firms undertake mergers and acquisitions and the reasons for failure. The identified reasons for
mergers and acquisitions include synergy, agency theory, value creation, market power, efficiency
gains, economies of scale and scope, strategic realignment, diversification, and reduction of tax
liabilities. The reasons for failure include hubris hypothesis, managerial discretion, price bubbles,
1
administrative costs, contagion and capacity effects, lack of a common vision, the rapid growth of
substitutes, cultural differences, poorly managed integration process, managerial challenges, target
valuation challenges, and synergy realisation challenges. The literature review also established that
the pre-merger and acquisition process, the actual transaction, and the post-merger and acquisition
process also impact the performance of the transaction. The thesis also investigated a neglected
area of mergers and acquisitions undertaken by firms from emerging markets. Over the last few
decades, the amount of foreign direct investment from emerging markets through mergers and
acquisitions have been increasing. Although the number of M&A undertaken by firms from
emerging markets has been growing, little research has been conducted to understand the reasons
for these transactions, the process, the challenges, and the success and failures.
In order to answer the research questions, a case study of CEMEX S.A.B. de C.V., also known
as Cemex which is a Mexican firm that produces building materials, was undertaken. The firm
operates in more than fifty-two countries across the globe. Over the last three decades, the firm had
undertaken more than a dozen mergers and acquisitions across the globe. Some of the mergers and
acquisitions have been successful while some have resulted in large failures. The data for the thesis
was collected using interviews. The participants of the study were the top management of Cemex.
The significance of this study rests on several grounds. In Mexico, a large number of
mergers and acquisition occur in the financial sector, for example, during the period 2009-2018
seventy-six of the ninety-four merger and acquisitions involved firms operating in the financial
sector (Deloitte, 2017; Rio & Colunga, 2018). Consequently, most of the studies on mergers and
acquisitions in Mexico have been conducted in firms operating in the banking sector (Bohada &
Hector, 2019; Hernàndez, Domìnguez, & Toledo, 2013; Romero & Fajardo, 2017). Thus, there is
limited empirical evidence on the mergers and acquisitions in Mexico that occur outside the
financial sector. In this respect, this thesis evaluated mergers and acquisitions outside the financial
sector. Further, the study explores the merger and acquisition process of a firm from an emerging
market. Over the last few decades, most of the mergers and acquisitions have involved firms in
developed nations (Ai & Tan, 2019).
The thesis is presented in nine chapters. Chapter one provides an analysis of multinational
corporations and the reasons why they exist. Chapter two provides a description of mergers and
acquisitions and the reasons why firms chose to undertake such transactions. Chapter three
summarises the process of mergers and acquisitions. Chapter four presents a theoretical and
empirical review of the challenges and reasons for the failure of mergers and acquisitions. Chapter
2
five identifies the research approach used to answer the research questions. Chapter six provides
an introduction to Cemex which was the company the thesis focused on. Chapter seven provides a
description of the study participants and a summary of their responses to the questions developed
to answer the research questions. Chapter eight provides a discussion of the findings. Chapter nine
contains conclusions drawn from the findings, makes recommendations based on the findings,
indicates the contributions of the study, and highlights the limitations of the study.

3
 1 MULTINATIONAL CORPORATIONS
This chapter provides a review of the concept and theories that support the emergence of
multinational firms.

1.1 Multinational Corporation

There are different definitions of the term multinational corporation which have numerously
termed as denationalized corporations, transnational firms, international corporations, or cosmo-
corparations (Kusluvan, 1998). Pitelis and Sugden (2000) define multinational corporation (MNC)
as an entity that owns and/or control the production of goods and service in one or more than one
country other than its home county. The ownership is usually meant by a majority of more than
50%. Hoskisson, Wright, Filatotchev and Peng (2013) define MNCs as firms that earns 25% or
more of its income from outside its home county. The defining feature of MNCs include they are
often large; their global activities are centrally managed by the parent company; involved in the
importing and exporting of goods and services; make significant investments in foreign countries;
buy and sell licences to its products in foreign markets; participate in contract manufacturing
(Allon, Anderson, Munim, & Ho, 2018).

1.2 Theories of Multinational Firms

There are various theories that try to explain the reason for MNCs. The theories attempt to
answer three fundamental questions: what are the factors that stimulate firms to produce goods and
services abroad? What conditions enable them to carry out their activities abroad? Why do the
MNCs have different types of investments? Kojima (1984) classified the theories of MNCs into
macroeconomic theories and microeconomic theories.

1.2.1 Macro-economic Theories

(a) Location Theory
The idea that firms expand beyond their national borders due to the location advantages
was first discussed by Richard Cantillon, Etienne Bonnot de Condillac, David Hume, James
Steuard, and David Ricard (Glatte, 2015). It was the work of Johann Heinrich Von Thünen that the
location theory was explicitly stipulated. According to Von Thünen (1826) the cost associated with
the transportation of the goods produced by industry reduces some of the economic rent identified
by Ricardo. Further, Von Thünen noted that the transportation costs and the economic rents, vary
across regions and goods. The transportation costs increase as the distance from the factory to the
marketplace increases. The theory addressed the question of why economic activities are located
4
where they are. Von Thünen argued that firms decide the location that will maximise their profits
while individuals chose those that will maximise utility. In his seminal works ‘Über den
Süddeutschland’, in 1909 Alfred Weber used the freight charges for inputs and outputs, and the
finished production function to develop a framework that could be used to establish the optimal
location for factories. Both works of Von Thünen (1829) and Weber (1909) focused on the national
point of view.
The international perspective was introduced by Hoover (1948) and promulgated by Ohlin
(1952), Sabathil (1969), Moore (1978), Tesch (1980), and Goette (1994). The academics postulated
the firms choose to operate beyond their national boundaries due to economic factors (potential
markets, competitive conditions, infrastructure, communication, transportation costs, labour costs,
monetary (conditions), political factors (tax regulations, environmental requirements, market entry
barriers, government support, political risks), cultural factors (language, attitudes, religion) and
geographical factors (climate, geography, natural resources, and topography). Glatte (2015) found
that it was no longer large corporations that expand abroad. According to Glatte (2015) smaller
firms and foreign direct investment are also determined by location selection.
(b) Absolute Advantage Theory
The main ideas of this theory are attributed to Adam Smith 1776. Smith (1776) argued that
countries attain absolute advantage by allowing for free trade and specialising in what they have
an advantage in. Smith (1776) reasoned that commerce between nations should not be restricted or
regulated by government but should be determined by free market forces. Smith argued that market
forces would increase efficiencies that would benefit the nation. Kojiam (1978) integrated the
absolute theory with MNCs by suggesting that foreign direct investment (FDI) is needed to make
nations / factor markets efficient and competitive internationally. Kojiam (1978) indicated that
MNCs enhanced production and exports through the transfer of capital, managerial competencies,
and technological know-how to the host nation. Kojiam (1978) identified three major factors for
MNCs to move abroad these include resources, labour, and market. The MNCs invest in foreign
nations so as to obtain and secure imports of goods which their home country does not have or
produces at higher costs. Labour-oriented MNCs look for areas were wages in given locations are
cheaper than in their home nation. The MNCs make use of idle or inefficient factor markets. The
market oriented MNCs aim to overcome trade barriers by providing import substitution of the
recipient nations. Additionally, MNCs seek oligopolistic advantages by investing in other markets.

5
1.2.2 Micro-Theories
(a) Hymer-Kindleberg Theory
This theory can also be referred to as the monopolistic or oligopolistic power, or structural
market imperfection theory. Hymer (1960) sought to answer why do firms go to other countries;
how are they able to survive in foreign markets where they have to incur adjustment costs; and why
do they want to acquire, retain control and ownership. Hymer (1976), found that the firms were
motivated by two incentives which were monopolistic or oligopolistic advantages that arose from
operating in the foreign nation. The second factor was the elimination of competition that the firms
experienced in foreign nations. Hymer (1979) observed that MNCs do not work in conditions of
perfect competition. Hymer (1979) introduced a third motivation for firms to go beyond their
national borders. The economies of scale and the efficient operation of the corporation’s business
and ability to coordinate activities with its subsidiaries.
Kindleberg (1969) introduced the concept of rigidities in the input’s markets. Kindleberg
(1969) argued that where there are factors that inhibit the flow of inputs to competitors, the
multinational enterprises take advantage of these rigidities. These include technology and designs
protected by patents, wages might be significantly different, interest rate paid on credits are
example of rigidities that give MNCs the advantages if they locate their production processes in
different countries and regions. The suppositions of Kindleberger (1969) allow for the cross-border
vertical and horizontal integrations that were put forward by Hymer.
(b) Product Life Cycle Theory
This hypothesis was put forward by Vernon (1969; 1979) as a means of explaining patterns
that emerged from international traded. Vernon suggested that in the initial stages, the product’s
life cycle all the factors associated with the product are sourced from the area where the product
was invented (Hill, 2007). Thereafter, the product is used in world markets. As the consumption in
world markets increases the production process progressively moves away from the area it was
invented. The life cycle of the product is depicted in Figure 1.1

6
 Stage 5 Stage 1:
Decline Introduction

Stage 4: Stage 2:
Saturation Growth

Stage 3:
Maturity

Figure 1.1: Product Life Cycle

Source: Vernon (1969, 1979)

In the introduction stage, the new product is introduced into the market. The firm creates
awareness about the product in order to stimulate demand. This stage is characterised by low profits
with few competitors. The growth stage is the natural transition as the firm sells more and more
units of the product. This stage is characterised by a reduction in production costs and an increase
in profits. At this stage, the product is well known, and competitors begin to produce their own
version. The maturity stage of the product life cycle is where the product is widely known by the
consumers. The demand level is flat while the sales volume increases but at a slow rate. At this
stage, there are more producers. The profit margins decrease but the volumes are high, and costs
are contained. At this stage, the firms develop foreign demand as a way to increase sales volume.
In the saturation stage, the sales volumes remain stable, they neither grow nor decline. The
producers introduce modification to the products to try an increase the demand. At this stage, the
competitors have gained a significant foothold in the market. At the decline stage, the product and
the production process are well known. The sales begin to decline with revenue dropping to the
level at which it is no longer economically feasible to continue production. At this stage production
can be moved to another country. According to Hill and Hult (2017), production is moved to
countries were labour costs are cheaper. Appleyard, Alfred, and Stephen (2006).

7
 2 MERGERS AND ACQUISITIONS
This chapter provides a review of the concept and theories that support the need and purpose
of mergers and acquisitions. The aim of this chapter is to provide the main concepts and terms that
cover the topic area of the thesis.

2.1 Definition of Mergers and Acquisitions

The main objectives of any business entity are to achieve the highest level of profits. However,
most business entities have limited capabilities and resources necessary to attain the highest levels
of profits (Rashid & Naeem, 2017). Therefore, in order to attain their goals, firms employ various
options; these options can either be organic or inorganic. Organic growth strategic involve the
expansion of business through new products, productivity enhancements, increased production,
streamlining of business operations and cost reduction, entry into new markets, and increasing
customer base (Dash, 2010). In organic growth is the process of growth of assets and sales
expansion through mergers and acquisitions (Dash,2010). Koi-Akrofi (2016) uses the term mergers
and acquisitions interchangeable to describe the fusion, joining, union, or coming together of two
or more entities through the process of acquisition or a pooling of interests (Koi-Akrofi, 2016).
The result of a merger is the formation of a new entity. According to Unoki (2013), an acquisition
occurs when a target company is purchased by another firm. The firm that purchases the target firm
treats the acquired entity as an asset. The firm is included as an asset in the balance sheet; the
amount paid above the target firm’s book value and/or market value is recognised as goodwill that
will be charged against future income (Unoki, 2013).
According to Wang, Pauleen, & Chan, 2013, a merger is the combination of two entities
whereby one entity transfers all its assets to the other entity which continues to exist. Put simply,
one entity is consumed by the other. The shareholders of the consumed firm obtain shares in the
surviving firm (Huh, 2015). On the other hand, an acquisition involves the buying of assets and
stocks of the target firm. The distinction between mergers and acquisitions is often blurred.
According to Popp (2013), the main difference between mergers and acquisitions is the position of
the shareholders. In merged firms, the shareholders of the target firm receive shares in the new
firm. In acquired firms, the shares of the target firm are transferred to the purchasing firm in the
form of cash or debt. Netter, Stegemoller, and Wintoki (2011) indicate that mergers and
acquisitions involve a wide variety of transactions, with different frameworks, and different effects
on the various stakeholders. Netter et al. (2011) argued that the difference between M&As is seen

8
in the governing structure that arises from the deal whereby mergers result in the equitable
combination of the firms while acquisitions entails less equitable combination of the firms with
more emphasis being place on streamlining and replacing the target-firms structures.
Estanol, Clougherty, Seldeslachts, and Szucs (2018) argue that mergers and acquisitions are
distinguishable by the fact that neither of the firms necessarily dominate in a merger, although the
acquirer tends to determine the process of integration and the future of the combined entity. In
summary, mergers create a new entity in which control is shared, whereas acquisitions tend to
result in the acquiring firm gains control over the target firm. According to Gauld (2016) mergers
results in mutual and two-way contribution by both the firms while in acquisitions there is only the
acquirer contributes. Table 2.1 provides a summary of transactions that Sedláček and Valouch
(2014) considered as M&A.

Table 2.1: Transactions that can be considered as Mergers and Acquisitions

Transaction Features

Merger The joining together of two or more firms into one successor firm
The joining together of two or more firms with equivalent proportion of
Joint Venture voting rights
A direct offer to the shareholders of the target firm to present their
Tender Offer shares for sale
The buying of shares of a major stockholder at a price that is above the
Premium buy-back market price i.e. at a premium
A technique used by some shareholders to gain representation in the
Proxy Repurchase board of the firm at the general assembly by way of proxy
Standstill A contractual agreement that restrains the bought-out shareholder from
agreement trying to take control over the business at a future date
Anti-takeover
amendments The withdrawal or increase in price of a business takeover

Going private A small group of shareholders acquire the entire equity of the firm

Share repurchase The firm reacquires its outstanding shares by way of a tender offer
This entails the buying of a firm by a small number of investors. The
Leveraged buyouts purchase is financed by way of leverage
This involves the sale of a portion of the firm to a third party. The aim
Divesture of this transaction is to raise cash

9
 Transaction Features

This transaction results in the formation of a new legal entity. The

shares of the new entity are divided with regard to the number of shares
Spin-Off held by the shareholders of the parent firm.
Source: Sedláček and Valouch (2014)

Merger and Acquisitions can take place between firms in the same industry or those
operating in different industries. When the firms that are involved in the transaction are form the
same industry, this is referred to horizontal merger (Kumar & Bansal, 2008). These types of M&As
give rise to gains such as increased market share, reduction in costs, and new market opportunities
(Berman & Ddawson, 2013). Vertical M&As occur whereby firms in the same production process
combine (Bonnet & Schain, 2017). These transactions have the effect of reducing production and
operation costs and expanding the economies of scale. The third type of M&As are conglomerates
in which two distinctively different firms from different industries merge. For example, a textile
company can by a restaurant. The main objective of conglomerate mergers is to reduce
concentration risks and to diversify the firm’s activities. In this thesis, the term mergers and
acquisitions were used interchangeably.

2.2 Reasons for Mergers and Acquisitions

Academics and scholars have indicated that there’s various factors that lead firms to participate
in M&As this section of the study reviews some of the most common factors.

2.2.1 Synergy
Synergy is a concept mostly associated with physical sciences but not finance and economics
(Dertwinkel-Kalk & Wey, 2016). It refers to type of reaction that results when two items combine
to produce an effect which is often greater than the individual effect of the items operating
individually. Simply put, synergy refers to a phenomenon whereby 2+2= 5 (Dertwinkel-Kalk &
Wey, 2016). In mergers and acquisitions synergy results in the combination of firms which creates
entities that are more effective, efficient, and profitable when combined than when operating on
their own (Bearman & Dawson, 2013; Marks & Mirvis, 2015). In the theory of synergies, it is
postulated that firms utilise the different categories of resources and technical competencies in
order to create value (Göhlich, 2012).

10
 Hinkir, Rauch, and Umber (2011) indicate that there are three types of synergies. Firstly, there
is the cost of production that creates operational synergy, the cost of capital that creates financial
synergy and the price-related which creates collusive synergy. According to Hinker et al., (2011),
synergy provides an explanation for M&As with the bidding firm aiming to realise the M&A
synergies so as to boost future cash flows and to increase the value of the firm. Operational
synergies are achieved by merging the operations and processes of the separate units and the
transfer of competencies (Hellgren, Löwstadt, & Werr, 2011). Göhlich (2012) indicates that the
synergies also arise from the possibilities of increase in revenue that occur due to cross and/or up
selling and cost reduction due to the gains of consolidation. Financial synergies arising from a
reduction in the cost of capital for example, the bidding firm is able to lower systematic risks by
investing in a firm that is unrelated to its core business or the firm can increase it size which result
in assets that lower the cost of capital. Hankir, et al (2011) indicated that the financial synergies
can arise from financial engineering, cash slacks, and tax savings.

2.2.2 Agency Theory

This theory is associated with Jensen and Meckling (1976). The theory is based on the
separation of the interest of the firm’s shareholders and the managers. Jensen and Meckling (1976)
postulated that the shareholders (principals) and management (agents) are rational and aim to
maximise their utility. In neo-classical economic theory it is assumed that the only focus in the firm
is to maximise profits (Schmitz, 2013). However, behavioural economists have found that the
objectives of management are to satisfy their own interests and not to maximise the firm’s profits.
In modern enterprises, the ownership is diversified and scattered, the management are often in-
charge. The management seek higher control, higher salaries, and better working conditions
(Hongxia, 2011). Gauld (2016) states that the modern organisation makes it very difficult and
costly to supervise the management effectively. A solution to the agency problem is to use incentive
schemes such as allocating fixed number of the firm’s shares at a pre-determined price at the
beginning of the period. The assumption is that the management will work hard to ensure that the
value of the shares increase so that they can sell them at a high price (Pink, 2009; Kräkel &
Schöttner, 2012). However, empirical research shows that this approach does not always work due
to information asymmetry (Garrone &Grilli, 2013). The managers can manipulate data and reports
in order to increase the value of the firm. This is referred to adverse selection and indicates

11
information asymmetry in markets. This problem is further enhanced by moral hazard (Peleg &
Raviv, 2019).
Another solution to the agency problem is a takeover through mergers and acquisitions.
Carpenter et al., (2009) indicate that resistance to the takeover is usually not in the interest of
shareholders and owners but it is in the interest of the managers as the transactions might result in
the loss of their jobs. Göhling (2012) asserts that management of the firm is reflected in the market
price of the firm, whereby firms with proper management are likely to have high share prices.
Poorly managed firms have lower share prices making them targets for takeovers as the bidders
see the potential gains from the improved management of the firm. The M&As are value enhancing
given that they instil discipline in otherwise corrupt managers.

2.2.3 Value Creation

In the resource-based view (RBV) the resources and capabilities of the firms determine its
competitive advantage and overall performance (Barney, 1991). In the resource based theory, it is
argued that the amount of resources the firm owns or has control over, relative to the resources
available in the economy and the availability of the opportunities to use these resources, determine
the extent to which they create value (Krishnan, Krishnan, & Lefanowicz, 2009). The resources-
based theory forms the basis for synergistic M&As (Altunbas & Marques, 2008). In order to ensure
that their firm is competitive, the management of the firm continually restructure and reconfigure
their resources and capabilities. Mergers and acquisitions are thus venues of creating value by
transferring resources and capabilities between the firms which creates a new organisational with
new technical competencies (Graebner, Heimeriks, Huy, & Vaara, 2017). During the post M&A
period there is transfer of capabilities in either or both directions. Deng (2009) and Luo and Tung
(2018) established that gaining strategic capabilities was a key reason for firms in emerging
markets or less developed economies to merge with firms in more developed nations.
Grimpe and Hussinger (2007) conducted a comprehensive review of six hundred and fifty-two
European mergers and acquisitions that occurred during the period 1997-2003. They established
that the need for technological assets and innovations was a key motivation for the mergers and
acquisitions. Similarly, Grimpe (2007) in a study of pharmaceutical firms found that large
companies tend to acquire smaller firms for their technological innovations. Grimpe (2007)
concluded that smaller firms tend to exhibit a higher level of creativity and innovativeness. The
responses given by the respondents confirm the conclusions of Grimpe (2007).

12
 In the Knowledge-based view (Grant, 1996; Kogut & Zander, 1992) argue that the tacit
knowledge is the most important strategic asset that firms which participate in cross border M&As
gain. The firms are able to gain access to new technologies and skills that are used by the indigenous
firms. The use of M&As solves the problems of technology, knowledge and skill deficiencies.
Anand and Delios (2002) found that M&As are driven by the desire of the firm to improve its assets
or to acquire specific assets. Similarly, Bertrand and Zuniga (2006) suggest that M&As serve as a
method for firms to restructure their research and redevelopment in order to reengineer their
operational actives and to enhance the overall productivity.
An emerging trend in M&A carried out by firms from emerging markets is the transfer of
knowledge and capabilities to the headquarters (Luo & Tung, 2007; Nair, Mehmut, & Kamal,
2015). Rabbiosi and Sangangelo (2013) refer to this type of transfer as reverse knowledge transfer
(RKT) whereby knowledge flows from the target firm to the parent firm. This transfer of
capabilities is important as it compensates for the latecomer disadvantages faced by firms operating
in less developed economies (Demirbag, Sahadev, & Mellahi, 2010; Mudambi, Piscitello, &
Rabbiosi, 2014; Rabbiosi & Santangelo, 2013). The acquisition of firms in more advanced
economies allows firms from emerging markets to catch up quickly which allows the firm to attain
competitive advantage and position in the global markets.

2.2.4 Market Power

In the market power theory, Feinberg (1985) argues that increased allocative synergies can
be obtained by a firm, when holding all other factors constant, the bigger the size of the firms, the
higher the market power. This market power allows the consolidated firms to charge higher prices
and to attain higher margins through the increase in number of customers. Eckbo and Wier (1985)
established that horizontal M&As create firms with greater market powers than other types of
M&As. This arises because the horizontal mergers reduce the number of producers of the given
goods and services in the market. With fewer suppliers in the market, the action of an individual
supplier is clearly discernible, and the probability of non-conformity is discovered. The easier it is
to discover non-conformity, the lower the monitoring costs; this results in enhanced stability,
profitability, and creates attractiveness of cartels.

2.2.5 Efficiency Gains

These gains are associated with the production function. These gains include the
rationalisation of the production process which allows for cost savings and the reallocation of

13
resources and production throughout the new entity without increasing the joint technological
capabilities; there are savings which arise due to an increase in the level of total output;
technological advancements that may arise by transfer of competencies and know-how or increased
research and design; savings in factors prices such as the intermediate goods or cost of capital, and;
reduction in slack (Roller, Stennek, & Verboven, 2006). Al-Sharkas, Hassan, and Lawrence (2008)
established that M&As achieve efficiency gains through the new input-output matrix which often
minimises the costs and maximizes the revenues.
Esfahani (2019) identifies two types of efficiency gains that arise from mergers and
acquisitions. The first type is cost efficiency which results when the firms move toward the frontier-
efficient or best practice cost. This is achieved by producing the same level of goods and services
using the output bundles which minimise the costs of production. The second type is when the
firms achieve profit efficiency whereby the level of profits are at the optimal level or close to those
achieved by the best-practice firms. Esfahani (2019) argued that profit efficiency incorporates cost
efficiency, the effects of scale and scope, and product mix on both the costs and income streams.

2.2.6 Economies of Scale and Scope

Economies of scale arise when the average costs of production fall as the level of output
increases. Economies of scope expand the definition of economies of scale by enhancing the
increase in output due to multiple products (Roller, Stennek, & Verboven, 2006). Economies of
scale are achieved through the combination of the firms though the coordination of the units of the
firms’ that were previously separate. This combination assists in the reduction of duplication of
indivisible tasks. Garzella and Fiorentino (2014) established that M&As create economies of scales
in manufacturing firms by sharing the fixed costs such as depreciation, amortization of capitalised
software, maintenance costs, interest expenses, lease payments, union, customer, and vendor
contracts, and taxes over an expanded level of production. When studying German firms
Schweinberger and Suedekum (2015) established that M&A create economies scope using a given
set of skills or assets currently employed in a producing a given product or service to produce other
goods or services.

2.2.7 Strategic Realignment

According to Baker and Jones (2008) M&As are means for firms to adopt to their changing
external environments. For example, when a firm does not have sufficient room for internal growth
if it wants to grow it must turn to external partners. Additionally, external factors such as taxes,

14
technology, and new rules and regulations may necessitate firms in a given sector to consolidate in
order to be able to cope with such changes (Bange, 2017). Some examples of mergers and
acquisitions include: Tata Motors Ltd with Tata Finance Ltd which aimed at growing the auto-
financing business with the aim of have a one-stop process for buyers of Tata Motors, the
management felt that this would enable the company to hedge against the cyclicality of the motor
business (Leepse & Mishra, 2016). The merger between Gabriel India Ltd and Stallion Shox
limited was aimed to strategically realigning the operations of Gabriel India by upgrading the
technology using the research and development (R&D) and design capabilities of Stallion Shox
operations (Kumar & Rajib, 2007). Shinny Ltd acquired Apar Industries with the aim of increasing
the production capacity by enhancing the working capital position through the raw material
manufactured by Apar Industries (Deo & Shah, 2011). The management of EID Parry acquired
Nutraceuticals Velensa International in order to gain access to the science-based patents and
extractions technologies (Deo & Shah, 2011).

2.2.8 Diversification
Technology giant Microsoft merged with Nokia as a mean of entering into the highly
competitive and highly profitable smartphone market. Eventually, Microsoft acquired Nokia for $
7.2 billion. Similarly, the acquisition of Washington Post for $250 billion was a mean for Amazon
an e-commerce company to diversify its business operations (Tiwari, 2015). Facebook also
acquired Whatsapp as a mean of expanding its product offerings. Additionally, M&As have made
it possible for firms to grow beyond their borders. According to Dash (2010) geographical
expansion is important for many firms as the national borders often impose limits on the ability of
the firm to growth. In a study of firms in the United Kingdom, Berry-Stölzle, Liebenberg, Ruhland,
and Sommer (2012) established that M&As were used to expand the firm’s business. The
diversification strategies used by the firms were divided into several types including geographical,
international, vertical, and horizontal diversification. Dzhagityan (2012), established that firms in
the field of science and technology undertook international diversification so as to allow for
flexibility of operations. Ouimet (2013), found that firms used diversification as a mean of
managing cost of labour and of capital.
Ahern, Daminelli, and Fracassi (2012), found that firms undertake M&A transaction deals
as a mean to manage risk. The extent to which risks reduce is determined by the level of business
diversification. Further, Ahern et al. (2012), found that diversification and decision to enter into

15
M&A deals was stimulated by the firm’s desire to grow, increase profits, and profit stability. Wu
and Chiang (2019), found that diversification through M&As was through related and unrelated
firms. Wu and Chiang (2019) also established that firms often start with firms that are related to
the industry, and subsequently merger and/or acquire firms in unrelated industries. According to
related and unrelated diversifications are important considerations in M&A deals as they reduce or
help the firms to manage systematic risk.

2.2.9 Reduction of Tax Liabilities

Devos, Kadapakkam, and Krishnamurthy (2012) established that M&As are motivated
by financial reasons. Firms are motivated by the chance to fully utilise the tax shields and possible
tax advantages. Fernandes (2014) in an evaluation of 640 M&As found that financial
considerations arising from tax optimisation such as the amortization of goodwill. The tax
advantages arise from the tax laws and use of past net operating losses. Profitable firms acquire
firms with accumulated losses in order to be able to reduce their tax burden (Ciobanu & Dobre,
2015).
Using a logit regression model, Devereux and Griffith (1998) established that the tax
consideration for M&A was stimulated by two considerations. Firstly, there was the simple investor
choice whereby the most important consideration was the effective average tax rate, this was found
to be significant because the effective average tax rate can easily be analysed at the beginning of
the transition. Secondly from the specialised investor’s perspective, the effective marginal tax rate
was considered important given that the tax considerations are relevant. Devereux and Griffith
(1998) concluded that investors and firm behaviour was driven by the desire to obtain lower and
favourable tax rates for their investments. The effects of taxation were established to also impact
the M&A processes. Martin, Wang, and Zou (2012) established that there the target firms tax
aggressiveness had a positive and significant impact on acquisition premiums. Chow, Klassen, and
Liu (2013), and Col (2012) found that the announcement returns of target firms and acquirers was
motivated by possible future tax avoidance which impacted the level of capital gain. The empirical
findings suggest that taxation indicators influence the decision on M&A. According to Ciobanu
and Dobre (2015) concluded that the possibility of tax avoidance on firms’ earnings and capital
gains significantly influence the decision by firms to undertake mergers and acquisitions.

16
2.3 Motives from the Sellers Perspectives
Most of the motives for M&As discussed in this section give the perspective of the
bidding firm (the buyer) but do not fully take into consideration the factors that motivate the seller
(the target firm). Bonnet and Shchain (2017) and Benndort and Martinez-Martinez (2017) find that
the sellers motives include: the lack of resources needed to ensure growth; the perception within
the firm that they have maximised growth in the current market and the management do not think
the firm can expand into new markets alone; the perception that the firm has attained its historical
peak in valuation; lack of a suitable replacement of the founder; challenges in accessing capital;
demand by firms investors for cash out, and new competition.
Matt (2016) found that the decision to sell by the board of directors is determined by the
valuation of the firm, when the board of directors feel that the market is undervaluing the firms
shares and the shares are being traded in depressed multiples relatives to its peers, the board of
directors uses the strategic alternative which results in seeking a buyer for the firm. Financial
distress of the firm whereby the firm has too much debt on its books or macroeconomic factors
which make it difficult for the firm to meet its financial obligations, M&As offer a means to secure
the firm (Bearman& Dawson, 2013). Denison and Ko (2016) argue that mergers and acquisitions
are stimulated by the demands of the shareholders. Denison and Ko (2016) found that shareholder
activism particularly where the firm’s shares are held by hedge funds, often necessitates the firm
to engage in M&As. Additionally, when the main shareholder wants to divest, the most commonly
used exit strategy is M&As.
In comparison to the MNCs from developed countries (DMNCs), MNCS from developed
countries (EMNCs) have been found to have low technological competencies and resources due to
the latecomer disadvantages, and weak institutions at home (Hoskisson et al., 2013; Peng, 2012).
Therefore, EMNCs seek strategic assets from developed economies and advanced companies
through M&As.

2.4 Cross Border Mergers and Acquisitions from firms in Emerging Markets
Over the last three decades outward foreign direct investment (OFDI) from emerging
countries has grown exponentially and is now considered to be an important element of economic
growth across the globe. According to the United Nations Conference on Trade and Development
[(UNCTAD), 2018] emerging economies such as accounted for approximately 33% of all OFDI
flows in 2017. Further, a significant amount of OFDI from emerging economies is created through
cross-border M&As (UNCTAD, 2018). The aim of these M&As is to increase the pace of growth
17
through international avenues. Deng (2013), established that firms from emerging economies are
increasingly participating in M&As for strategic factors such as the acquisition of technology,
enhancing brand name, and to gain access to natural resources.

2.5 Summary
Firms from emerging markets have over the years continued to undertake M&As both in
other emerging markets and in more advanced markets. Researchers (Ahern, Daminelli, &
Fracassi, 2012; Bearman& Dawson, 2013; Benndort & Martinez-Martinez, 2017; Denison & Ko,
2016; Roller, Stennek, & Verboven, 2006; Tiwari, 20150 have examined the factors that motivate
firms to undertake M&As. These reasons have been found to include synergy, agency theory, value
creation, market power, efficiency gains, diversification, economies of scope and scale, reduction
of tax liabilities, and strategic realignment. However, there are only few studies that evaluate the
cross-border M&As by firms from emerging markets. This thesis sought to establish the reasons
for M&As by a firm from an emerging market.

18
3 PHASES AND PROCESS OF MERGERS AND ACQUISITIONS
Depending on the county or region, there are different phases of the M&A process. It is
important to distinguish the different phases of the M&A process as they influence the outcome of
the M&A. This section of the study reviews the phases and process of merger and acquisitions.
3.1 Merger and Acquisition Process
In literature the M&A process and procedure are described differently by different authors.
Koi-Akrofi (2016) states that the M&A transactions involves three phases namely planning,
implementing, and integration. The planning process entails operational, managerial and legal
techniques, and optimization with regard to the next two phases. The implementation stage includes
the issuance of confidentiality or non-disclosure agreements, letters of intent and ends with the
signing of the M&A contract. The last phase is post-integration. Schweiger and Weber (1989)
indicate that the M&A process consist of two stages namely the pre-merger phase and the
implementation phase. Quah and Youg (2005) identify four stages in the M&A process to include
pre-acquisition, slow absorption, very active absorption, and totally absorbed. Marks and Mirvis
(2015) postulate that the M&A process involves three stages namely pre-combination,
combination, and post-combination
The Watson Wyatt Deal Flow Model breaks down the M&A process into five stages namely
formulation, location, investigation, negotiation, and integration (Ai & Tan, 2017). In the formulate
stage, the firm formulates its objectives and strategies, the management stipulate the characteristics
of a feasible target. The characteristics include the market share, the location and access to markets,
product and technology, and synergies. The locate stage entails the firm looking for a desirable
target firm. At this stage the management initiate conversation with the management of different
firms. The outcome of this stage is the issuing of the letter of intent that identifies the bidder firms
the initial deal parameters, terms, and conditions. The investigation and due diligence states
involves an extensive exploration of every facet of the target firm. The analysis covers areas such
as finance, operations, legal, and environmental factors. The outcome of this process results in a
summary of the key findings and identifies potential obstacles. The bidding firm uses the findings
of the due diligence process to negotiate the boundaries of the deal and establish the offer price.
The negotiation stage is managed by the deal team which develops the negotiating strategy and the
terms and conditions of the deal. The negotiation team considers the price, performance,
employees, legal factors and governance. The integration stage involves the combination of the
firm’s processes, employees, technology, and systems. The motivate stage is the final stage and is
19
 focused on maximising the value of the combined firms. At this stage anticipated synergies are
realised, and the management focus on driving the organisation forward (Bhagwan, Grobbelaar, &
Bam, 2018).

Pre-M&A M & A Deal Post-M&A Deal

Pre-M&A Pre-M&A
deal due Integration
Review
diligence

Search Acquisition Outcome:

and through Performance
Screen negotiation
Target

Stability/
Investigate Instability
and Value
Target

Continuity/
Termination
of Deal

Figure 3.1: Mergers and Acquisitions Process

Koi-Akrofi (2016)

20
 Ai and Tan (2018) describe the first three stages of the Watson Wyatt Deal Flow Model as the
planning stage, the negotiation stage is considered the implementation and the last stage is
considered the integration stage. Bauer and Matzler (2013) braked down the merger and acquisition
process into three phases represented in Figure 3.1. At the pre-merger phase the firm’s
management initiate the process; conduct feasibility studies where the financial and logistical
aspects of the deal are considered; commit to the process by allocating funding and necessary
resources; negotiate with the target firm in order to reach an agreements on the structure of the new
entity, and signing of the detailed merger contract (Sarrazin & West, 2011). The pre-merger phase
is managed by external consultants and specialists. Bauer and Matzler (2013) describe the post-
M&A stage as execution or implementation phase of the M&A process; it is the phase that
determines the outcome of the deal. Graebner et al., (2017) define the post-M&A stage as a gradual
process whereby the two entities learn to work together in order to achieve the set-out objectives
3.2 Effect of the Merger and Acquisition Process on Outcome of the Deal
The literature review suggests that the M&A process is divided into three phases: the
premerger, the actual deal, and the post-merger process. Each of the stages play a critical role in
the outcome of the transaction. The value creation and the combined firm’s ability to generate
returns and meet managements objectives is determined by the M&A process and the strategies put
in place to manage the process (Canina & Kim, 2010). Dertwinkel and Wey (2016) established that
the success of M&A deal was determined by the pre-merger decision making, plus the success of
the post-merger implementation.
In their analysis of M&A deals Chanmugam, Shill, Mann, Ficery and Purche (2005) found that
managers viewed the premerger and post-merger phased as separate and unrelated process; the
managers often planned for the premerger stage but only began to plan for the post-merger
integration once the deal was announced or completed which was often too late to allow for a
successful outcome. Hu (2015), found that different groups and managers were tasked with
undertaking the pre-deal and the post-deal processes. This created disconnect between the
anticipated objectives of the deal and the achieved goals during the M&A process. Hu (2015),
concluded that in order for the deal to yield the desired outcome, the managers must incorporate
the plans and merge the pre-and post-deal processes.

21
4 CHALLENGES AND REASONS FOR FAILURE OF MERGERS AND
ACQUISITIONS
The main avenues for growth for MNE’s are through M&A. However, the expectations of the
managers sometimes are too high, and the difficulties associated with M&A’s are underestimated,
or not anticipated. This section evaluates the challenges and reasons for the failure of mergers and
acquisitions.

4.1 Indicators of Performance of the Merger and Acquisition

Mergers and acquisitions are expected to create value through reduced costs, increased market
share, or both, and increased utilisation of tangible and intangible assets of the firms (Björkman,
Stahl, & Vaara, 2007; Gupta, Kumar, & Upa 2012). According to Rui, Zhang, and Shipman, the
success or failure of M&As is determined by the share value of the firms, increasing the share
prices implies positive performance while decrease implies failure. Zaheer, Castaner and Sounder
(2013) indicate that the most common indicators of the success or failure of M&As are accounting
and financial parameters. These parameters include profits, losses, return on assets, return on
investments, share price, earnings per share, and return on equity.
He, Khan, and Shenker (2018) and Lui and Woywode (2013) indicate that the success of an
M&A is the ability of the firm to protect its turf. They argue that M&A’s are not always undertaken
to enhance the monetary position of the firm but to ensure that the firm maintains its position in
the market and industry. Thus, if the firm is able to retain and/or improve its position then the M&A
can be considered to be successful. Similarly, Gomes, Angwin, Weber and Tarba (2013), indicate
that the success of M&As can be indicated by the attainment of the firm’s strategic objectives.
Rosenbush (2007) indicates that the performance of M&A can be indicated by the reaction of
the staff. Rosenbush (2007) in a study of firms in the United Kingdom established that firms
invested billions in the M&As but end up losing money and divesting because the M&As have
negative effects on the employees. According to Rosenbush (2007), the human capital of the firm
is the most important ingrediate to attaining the firm’s objectives of profit maximisation, growth,
cost reduction, growth in market share and increased customer satisfaction. The departure of
employees following the M&A is an indicator that the deal is likely to result in failure.
Wallace and Moles (2012) argued that establish that the success or failure of M&A can be
viewed from two extreme perspectives. Firstly, if the post-M&A deal results in the firm going into
liquidation then the result is considered to be a failure. Secondly, if the M&A deal was for the
purpose of short-term financial gain, then a significant increase in income, or return on capital
22
employed is considered a success. Barasa (2015) in a study of the impacts of M&As on the
performance of firms listed on the Nairobi Securities Exchange argues that the performance of the
M&A deal is determined by the prices of the shares of the target and bidder firm at the time of the
announcement. At the time of the announcement, if the price of the company shares increases, then
the M&A is considered a success but if the price falls, then it is considered a failure.

4.2 Reasons for Failures of Mergers and Acquisitions

Empirical studies have shown that in some instances M&As fails and /or underperform the
expectations. The theory on M&A is divided into two broad categories that include value increasing
and value decreasing. This section reviews the value decreasing theories. The value decreasing
theories can be divided into two groups. In the first group it is assumed that the management of the
bidder firm due to overconfidence makes mistakes and that result reflects in losses. The intention
of the managers is to increase value, but this does not occur. The second group assumes that the
managers are rational, but act in their own self-serving interests, they maximise their utility at the
expense of the firm.

4.2.1 Hubris Hypothesis

Over the years, research has empirically established that the bidder firms, on average, do not
gets as much profits from M&As as do the target firms (Campbell et al. 2011). In some instances,
the M&A diminishes the earnings or completely destroys the shareholders of the bidder firms’
wealth. Servae (1991) established that target firm had returns of 23.64% compared to 1.07% for
the bidder firm. Similarly, Andrade, Mitchell, and Stafford (2011) when evaluating data over a
three-day event window of the combined returns for the bidder and target firms, they found that on
average abnormal returns of 1.8% were realised after the M&A announcement. Andrade et al.
(2001) established that most if not all of the abnormal returns were attributed to increase in the
target firms. These effects were found to be more pronounced in transactions were the bidder firms
were larger (Billet & Qian, 2008; Bouwman, Fuller, & Nain, 2009). These destructive effects often
occur when the bidding firms are larger. Van de Waal (2013) attributed the dismal performance to
the hubris hypothesis.
This hypothesis was put forward in 1986 by Roll. Roll (1986) postulated that the managers
overestimate their capacity to determine the potential of M&A. The result of the overestimation is
that the bidder pays too much for the target firm. The fundamental assumption for M&As is that
the financial markets are efficient, so firms are valued correctly. The hubris hypothesis does not

23
dispute the efficiency of the financial markets but focuses on the inefficiencies in managerial
behaviour. According to Brown and Sarma (2007), Doukas and Petzemas (2007), and Malmendier
and Tate (2008), the hubris effect is greater in larger firms.
Malmendier and Tate (2008) found that overconfident managers overestimate their abilities to
identify target firms that will maximize the earnings of their shareholders in M&A transactions.
Malmendier and Tate (2008) established that overconfident managers undertake more M&A
transactions and tend to overestimate the synergies that will accrue. The researchers concluded that
overconfident managers are more likely to undertake transactions that are destructive; they
estimated that on average the overconfident managers pay $ 7.7 million more than rational
managers. These findings confirmed the findings of Doukas and Petzemas (2007) who when
studying acquisitions of private firm established that there was a negative and significant
relationship between overconfident managers and performance. Doukas and Petzemas (2007)
found that the overconfident managers felt that they had superior skills; the overconfident CEOs
felt that the target firm could do significantly better under their management. Vagenos-Nanos
(2010) found that overconfident managers destroy more or generate less earnings than their more
rational counterparts. According to Nguyen (2015), one of the clearest signs of overconfidence was
the acquisition of WhatsApp for $19 billion by Facebook. Nguyen (2015) argued that the merger
was being driven by the pride and ego of the owner of Facebook, this is because the price of $ 19
billion was not justified.

4.2.2 Managerial Discretion Hypothesis

This hypothesis is attributed to the works of Williamson (1963). Williamson hypothesised that
the objective of the management of joint stock firms is not the maximisation of shareholder’s
profits; the objective of the management was to maximise their own utility. The managers use their
discretion to develop and implement policies which would maximise their utilities without regard
for the effects on the shareholders (Trivedi, 2009). Essentially, the problem is that of the principal-
and-agent. Williamson (1964) assumed inefficient markets where there was imperfect competition;
separation of ownership and management; and few constraints on the firm’s ability to pay dividends
to its shareholders.
Management’s utility function consists of salary, job security, status, control, dominance, and
professional recognition. According to Nadar and Vijayan (2009) salary is the most important
variable; the other variables are non-monetary. Trivedi (2009), used the expenditure on staff

24
salaries, management slack, discretionary investments to develop the utility function given in
equation (3.1)

𝑈 = 𝑈(𝑆, 𝑀, 𝐼( ) ...........................................................................................................(4.1)

Where 𝑈 denotes management’s utility; 𝑆 denotes expenditure on staff; 𝑀 denotes management

slack; and 𝐼( denotes discretionary investment.
The expenditure on staff includes the monetary payments given to the management and the
staff under the managers. Management slack includes items such as entertainment allowances,
lavish furniture and fittings, luxurious cars, the expense account, amongst others. These are benefits
given to the management that are above their salaries. These are perks that are meant to incentivise
the management to enhance their performance. The perks also increase the prestige and status of
management making them more likely to stay with the firm. These expenses are considered as part
of cost of production. Discretionary investments are the amount of residual income that are at the
manager’s disposal which they are allowed to spend at their own discretion. These investments are
those that go beyond those needed for the survival of the firm (Ahuja, 2009; Trivedi, 2009).
According to Chen, Li, & Pan (n.d.) the management of the firm uses their discretion to engage
in M&As in order to fulfil their personal interest. The management seek to maximise their benefits
at the expense of their shareholders. The managers are motivated by their private benefits. When
the managers engage in M&As they are able to enhance their welfare in a number of ways. In
situations where the firm has excessive cash flow, the management seek to enhance their welfare
by investing the free-cash flow on low-returns or value destroying M&As rather than distribute the
excess cash flow as dividend to the shareholders (Lang, Stulz & Walking, 1989, 1991).
Gondhalekar and Bhagwat (2003) when studying the motives for M&A of firms listed on the
NASDAQ during the 10 years before and after the 1987 financial markets crash. Established, that
the managerial self-interest was the driving motive for M&As that realised negative returns.
Hodgkinson and Partington (2008) found that there is still evidence of the managerial motives in
NASDAQ firms

4.2.3 Price Bubbles

According to Sedláček and Valouch (2014), the M&A process depicted in Figure 2.1 creates
price bubbles which allow for high risk taken by the investors which is often financed by unsecured

25
funds. The lack of liquidity and inability of debtors to honour debts results in a decline in the price
of the assets.

4.2.4 Administrative Costs

When studying manufacturing firms in the United States Zhou (2011) established that the
combination of synergy costs, and administration costs impacted the outcome of M&As. Zhou
(2011) found that the new entity had larger input requirements and thus higher costs. Additionally,
the interdependencies between the firms increased the administrative costs. These costs
counterbalanced the synergies that arose from the M&A.

4.2.5 Contagion and Capacity Effects

Shaver (2006) found that M&As fail because of the contagion effect. This occurs when the
target and bidding firm begin to share resources of the separate business unit. This sharing results
in both positive and negative effects. The negative effects erode the positive gains. Additionally,
the sharing of resources whose availabilities are limited. The substantial use of the resources
resulting from the combined entities depletes the resources.

4.2.6 Information Asymmetry

Chae, Chung, and Yang (n.d.) found that information asymmetry between the acquiring and
target firm determines the success or failure of the M&A. This was as a result of the fact that the
firms could not exchange commercially relevant information before the deal is struck. The
information that is legally permissible to be shared is often limited. Scott, Christofferson, McNish,
and Sias (2004) established that in approximately 10 to 30 percent of M&A transactions it is
typically not the bidder but the seller who realises any benefits from the transaction. This was
established to be due to the fact that the bidding firm often does not have full and accurate
information about the target firm, their managers, suppliers, channel partners, and customers. Zhou
(2011) and Eliasson (2011) when evaluating failed M&As in Asia and Europe established that even
when the firm has sufficient experience with mergers and acquisitions the lack of full information
means that the management cannot systematically attain information to fully make the correct
decision.

4.2.7 Lack of Common Vision

The lack of a common vision means that there is no clear understanding as to what the new
firm stands for, how the firm will be managed, and how the firm will operate. The lack of a common

26
vision means that there is no convergence and thus the firms will not be able to blend properly
(Siegenthaler, 2010).

4.2.8 Rapid growth of Substitutes

This cause of failure is best exemplified by the failed merger between American Online (AOL)
and Time Warner. At the time of the merger Time Warner was a major media firm while AOL was
a major provider of internet and email services. The aim of the merger was to create an entity that
had a monopoly in the print and electronic media. However, the intended benefits were never
achieved due to the dot.com bust and a decline in the dial-up internet access. Wade and Jared (2010)
averred that the quick development and growth of firms like Yahoo and MSN introduced stiff
competition, which AOL-Time Warner were not able to surmount. Further, the growth of
broadband and the inability of AOL to keep up only spelt doom for the firms (Shuka, 2014).

4.2.9 Culture
Roy and Roy (2004), indicate that the culture of the two firms can determine the success or
failure of the M&A. Loomis (2011) when investigating the reason for the failure of the merger
between Hewlett and Packard (HP) and Compaq Computer Corporation (Compaq) found that the
culture of the two firms was significantly different. The two firms merged in 2001, they were
leading firms in the global computer industry. However, after the merger, the firms had shed $ 13
billion off their market capitalization value. The major stumbling block was the culture at HP and
Compaq. Hewlett-Packard had an engineering and compromise style of management. Compaq had
a rigid sales culture with a management structure that was centralised and autocratic versus the free
and flexible management in HP (Loomis, 2011). Bouwman (2013), indicates that cultural
differences between firms are substantial factors that affect the performance of the firms. The
findings of Bouwman (2013) confirm the findings of Schraeder and Self (2003).

4.2.10 Poorly Managed Integration

This process occurs after the deal has been concluded. The firms are expected to co-operate
and act as one firm. Ciazza and Volpe (2015) established that the integration problems encountered
by firms after M&As come in various forms. The main forms are task integration and human
integration. Task integration entails combing the different operational units and departments
(Risberg, 2013). This creates difficulties as the firms have different systems that need to be fused
together. Additionally, there is the challenge of dealing with duplicate functions and units.
Additionally, the technology, capabilities and intellectual capital have to be increased. Human
27
integration entails ensure a good working relationship, company culture, and employee satisfaction
amongst all the employees. Galpin and Herndon (2000) in their research work found that 47% of
the key employees exit the firm in the first year of the M&A and 75% leave within the first three
years. These figures indicate that there are challenges in integrating the human resources.

4.2.11 Managerial Challenges

This refers to the challenges the managers of the firms encounter during the negotiation process
and during the implementation (Marks & Howard, 2015). Hiller et al. (2000) indicate that M&As
are driven by the intention for growth needed to maximise shareholders value on one hand. On the
other hand, the transactions are driven by fear of changing business environments. These changes
include new technologies, increased competition, and globalisation. A challenge the managers is
the ensure that the M&As are motivated by the correct reasons (Sudarsanam, 2003). The managers
also face the challenges of running their firms and the core business of the other firm. During the
integration process, the management has to focus on the integration of the firms (Nguyen &
Kleiner, 2003). The integration of the different company cultures is also a challenge that
management face (Birkinshaw et al., 2000). The management view and approach of the target firm
may be difficult to integrate, if for example the target firm has democratic management style and
the acquirer has autocratic leadership makes the process more complex.

4.2.12 Target Valuation Challenges

Determining the right price to pay during the M&A is normally a major challenge (Pablo &
Javidan, 2009; Recardo & Toterhi, 2015). Normally, the acquiring firm pays a premium for the
target firm. The challenge arises in which approach should be used to value the firm. There is also
information asymmetry between the acquirer and target firm. There are various valuation
approaches and techniques which makes it difficult for the firm to choose and appropriate
approach. Shusta (1999) and Eccles and Cfa (1999) argue that the price determined does not matter
as there is no single good price for acquisitions. Price (2013) indicates that the valuation methods
are the problem. Price (2013) indicates that the valuation methods do not take into consideration
all the factors that are needed for the success of M&As. The valuation process is further
complicated by intangible assets. These assets are difficult to quantity economically and to attach
a price (Penny & Torgby, 2003). Trugman (2012) asserts that the valuation of intangible assets is
uncertain. The uncertainty pertains to the future benefits that can accrue from the use of the assets.

28
4.2.13 Synergy Realization Challenges
The key rational behind M&As is achieving synergies. Achieving the expected synergies
is often a challenge for firms (Recardo & Toterhi, 2015). According to Thompson (2019) the failure
to attain synergies arise as a result of the firm’s disruption of the business operations, efforts to
reduce costs and streamline business activities. Scot et al. (2004) established that after M&A, there
are normally high losses that result from the company’s customers shifting to the competition
which renders the deal unprofitable and makes the whole company vulnerable to takeovers.

4.3 Summary
The review of both theoretical and empirical literature indicates that there are numerous factors
that cause the failure of M&As Table 4.1 provides a summary of these factors

Table 4.1: Failure Factors for M&As

Failure Factors Descriptions Researchers

Poor human resource integration; poor
cultural fit, employee resistance,
Human Aspects psychological issues, culture risks,
incompatible management styles,
Overestimation of synergy potential;
premium paid is too high; mis-
Valuation valuation of target firm; problems with
Problems valuation; inaccurate information; mis-
valuation of assets, information
asymmetry
Wrong Company size; poor
communication; lack of clear vision;
hubris; demographic challenges; lack of
Managerial acquisition experience; incorrect due
Problems diligence; high debt levels; lack of
change management skills;
incompatible strategies; acquisitions at
the wrong time
Improper task and process integration;
Integration slow integration;
Problems
Source: Author’s Own Compilation
Larsson and Finkelstein, 1999;
Epstein, 2004; Wu & Wu (2011);
Sacek, 2012; Bouwman, 2013;
Caizza & Volpe, 2015; Uzelac et
al., 2015
Shusta, 1999; Capron & Shen,
2007;Pablo & Javidan, 2009;
Chemmanur et al., 2009; Price,
2013; Fiorentino & Garzella,
2015;
Hiller et al., 2000; DiGeorgio,
2000; Sudarsanam, 2003; Nguyen
& Kleiner, 2003; Birkinshaw et
al., 2000; Recardo & Toterhi,
2015
Epstein, 2004; Caiazza & Volpe,
2015

29
 5 RESEARCH APPROACH
This part of the thesis describes the research approach used. Al Mofarreh (2016) asserts
that using the appropriate methodology and research design are crucial to correctly achieving the
objectives of the study. The research approach is discussed, the participants and site of the study
are identified, data gathering methods are highlighted, and the instruments to be used in data
analysis are given. Discussions of the ethical issues associated with the thesis are also discussed.

5.1 Conceptual Framework

The conceptual framework provides a diagrammatic illustration of the effect of M&As on
firm performance (Yusuf, 2016). Figure 5.1 presents the conceptual framework

Pre-Merger and Post-Merger and

Acquisition Merger and Acquisition
Performance Acquisition Performance

Figure 5.1: Conceptual Framework

5.2 Research Approach

5.2.1 Qualitative Versus Quantitative Research Approaches

Wellington (2015) writes that the researcher should describe, assess, and justify the use of
a specific research approach. The researcher should justify the underlying reasons for the choice
of the method and how it will be used to achieve the research objectives. After evaluating the
approaches and tools used in numerous studies, it was established that research can either be
qualitative, quantitative, or a mix of both. The quantitative research approach entails the use of
statistical, computational or mathematical methods in order to fulfil the research objectives. In the
quantitative approach the measurement of variables is key to establishing the connection between
the empirical observation and mathematical, statistical, and computation expression (Goertzen,
2017). Quantitative data is in the form of numbers such as means, frequencies, percentages,
averages amongst others (Kasim, Alexander, & Hudson, 2010).
Qualitative research design uses non-numerical data. In this approach the researcher seeks
to establish the concept, reasons, the metaphors, concepts, meaning, and description of things and
not the quantity or measure of the phenomenon under study. The qualitative approach is used to
answer the why and how of a given phenomenon. The aim of this approach is to provide an in-

30
depth understating of the phenomenon of interest to the researcher (Babbie, 2014; Gill, 2014). The
mixed methods approach entails the integration of the qualitative and quantitative approaches
within a single study.
Given the research questions, the qualitative research approach was found to be the most
appropriate. The reason for using qualitative research design is because this approach allows for
the rich and detailed understanding of a given phenomenon, topic, issue, or meaning using first-
hand experience (Yazan, 2015). The qualitative research design allows for the collection of in-
depth information. Due to this, the findings are subjective as opposed to being objective and are
thus gathered in a written format as opposed to being numerical (Astalin, 2013). The study used
qualitative data. Wellington (2015) assets that researchers are able to benefit when using qualitative
data when they analyse phenomenon as they are able to make sense of the phenomenon and/or
interpret the phenomenon with regards to the meaning that the study items bring to it. Qualitative
research entails the obtaining of data and information directly from the participants in their natural
settings (Creswell & Creswell, 2017). Therefore, the qualitative research is relevant as it allows for
the complex understanding of the phenomenon under study and engagement of the persons that are
most impacted or are responsible for the phenomenon. Data Analysis.

5.2.2 Case Study Qualitative Research Design

The qualitative research design can be implemented in four ways including
phenomenology, ethnography, grounded theory, and case study. Phenomenology entails the study
of a given phenomenon. The phenomenon could be in the form of events, concepts, experience, or
situation. The phenomenology approach tries to describe the manner in which the subject being
observed exists (Wisdom & Creswell, 2013). Ethnography provides a detailed description of the
social life and culture of a given social group by observing what the individuals in a given social
setting actual do (Dewan, 2018). Grounded qualitative research uses the data to generate
theory/theories. The grounded through uses a flexible framework to collect data, code the data,
develop connections, and to identify the theory/theories that emerge, or that are developed from
the data (Oktay, 2012). According to Astalin (20130, the case study approach evaluates the person,
even, project, policies, periods, decisions, or other systems historically.
The case studies are either descriptive or explanatory. Rose, Spinks, and Canhoto (2015)
define case study research design as the investigation of one or more specific instances of a given
element that comprises the cases in the study. The case is usually an item or object that is concrete

31
such as an organisation, group, or an individual, or can be more abstract such as an event, a
management decision, or a change programme (Gomm, Hammersley, & Foster, 2000; Yin, 2014).
Mostly, case studies are conducted using qualitative data, although, quantitative data can be used
(Creswell & Creswell, 2017).
The aim of this research study was to determine the reason for failures of M&A
transactions. The best way to answer the research questions was through the case study approach.
The case study approach was chosen because of its ability to collect in-depth information and to
describe the situation fully as it is. According to Yin (2014), the case study is appropriate where
the researcher does not wish to generalise but to describe the implementation of a programme and
or policy. This thesis focuses on the M&A programmes and policies used by CEMEX and identify
the causes of their failure. The case study approach was also chosen because it allows for
determination of the holistic perspective on the research phenomenon. This allows the possibility
of investigating the complexity by determining the relevant factors that give rise to a given
phenomenon (George & Bennet, 2005). Additionally, George and Bennet (2005) advocate for the
use of case study research design as retrospective information can be obtained.

5.2.3 Data Collection Method

Yin (2003) identified six different methods that can be used to collect data for case studies.
These methods include documents, records, interviews, observations, participation, and physical
artefacts. These methods are depicted in Figure 5.2. The data was collected using interviews of the
top management of CEMEX Firm. The main reason for the use of interviews is to obtain precise
information from the interviewees by asking them the mistakes and errors that result in failures of
M&As undertaken by CEMEX. The researcher will also use interviews as they allow for the
understanding of how the mistakes and errors occur from the perspective of the respondents.
Cohen, Manion, and Morrison (2011), assert that interviews allow the researcher to obtain critical
information when investigating a given issue. Gay, Mills, and Airasian (2012), advocate for the
use of interviews as they are more like conversations and thus, provide the researcher the
opportunity to ask substantial questions and learn more about the item under investigation.

32
 Interviews

Participation Evaluation of
Documents

Case Study

Observation Archive
of Study Documents
Subjects

Focus Gropus

Figure 5.2: Case Study Data Collection Techniques

Patton (2015), asserts that there are three ways of conducting interviews. Firstly, there is
the conversation technique which tends to be informal. The researcher poses the questions in the
usual or natural conversational manner. Secondly, there is the guided approach where the
researcher engages the respondents in a structured manner and focuses on the topic only. The third
is the open-ended interview whereby the respondents are all given the same predetermined
questions. The researcher will use open-ended interviews. The open-ended interview questions will
be developed using theoretical literature and empirical literature. This will be done to ensure that
the questions asked are valid and thus useful to the research. The research instrument will be refined
with the help of the thesis supervisor.

5.2.4 Interview Guide

The aim of the study was to understand the reasons for failures of mergers and acquisitions.
The review of both empirical and theoretical literature showed that various factors contributed to

33
the failure of M&As (Nadar & Vijayan, 2009; Nguyen, 2015; Price, 2013; Sedlàčk & Valouch,
2014; Shuka, 2014; Van de Waal, 2013; Zhou, 2011). The interview guide was used to provide
direction for the interviews (Appendix1). The interview guide was developed from the review of
both empirical and theoretical literature. The research questions arising from the literature review
were as follows:
(i) What are the reasons for mergers and acquisitions undertaken by Cemex?
(ii) What is the M&A process used by Cemex?
(iii)What are the challenges faced during the M&A process?
(iv) Which are the failures and the reasons for failure of the mergers and acquisitions undertaken
by Cemex?
(v) What are the remedies put in place by Cemex to deal with the failures?
5.3 Location of the Study
CEMEX has a presence in more than 50 countries across the globe. The firm is head
quartered in Mexico (CEMEX, 2019). The interviews were conducted in the form of conversations
with the managers over internet platform SKYPE. The length of the interviews varied but on
average the interviews took two hours. The study participants refused to have the interviews
recorded and thus the responses were written down. The participants agreed to participate in follow
up interviews to clarify issues.

5.4 Study Participants

The aim of the study is to determine the reasons for failures of M&As carried out by Cemex
Ltd. The target population for the study were the employees working at Cemex. The company has
a total of 42, 024 employees across the globe. However, not all the employees have information
with regard to the M&A decisions of the company. Only the top echelon of management of Cemex
have the information required to answer the research questions. Figure 5.3 provides the top
management of Cemex.

34
 Chairman of the Board and Chief
Executive Officer

Executive Vice President of Investor Relations Executive Vice President of Corporate

Corporate Communications and Public Affairs Affairs and Enterprise Risk Management

Executive Vice President President CEMEX Asia, Executive Vice President of Sustainability
Global Supply Chain Middle East and Africa and Operations Development
Development

Executive Vice President of Finance and President Executive Vice President

Administration CEMEX USA of Digital and
Organization Development

President of President of
CEMEX Europe CEMEX South,
President of CEMEX Mexico
Central America
and the
Caribbean

Executive Vice President Global Commercial Executive Vice President of Strategic Planning
Development and New Business Development

Figure 5.3: Corporate Structure CEMEX

Source: CEMEX (2019)

Therefore, the study only sampled executive vice presidents of corporate affairs and
enterprise risks, finance and administration, global commercial development, and strategic
planning and new business development. The study also sampled the presidents of CEMEX
35
Mexico, USA, Europe, South, Central America and the Caribbean, Asia, and Middle East and
Africa. In total, the study aimed to interview nine top managers of CEMEX.

5.5 Ethical Considerations

The researcher addressed the following ethical concerns before and during the research
process.

(a) Permission: The researcher applied for approval for the study from the department of
economics, Masayark University. After attaining permission from the university, the
researcher sought permission from CEMEX to interview its officials.
(b) Informed Consent: The voluntary agreement to participate in the study and sufficient
information disclosures about the study by the research are critical elements of informed
consent (Mantil & Licari, 2018). The participants were informed about the purpose of the
study prior to requesting them to participate. The participants were informed that they could
withdraw from the study at any time. Participants were made aware that they should answer
only the questions they felt comfortable with.
(c) Confidentiality Concerns: The participants will be informed that their individual
responses will be kept confidential. The names of the participants will not be published
rather only their responses will be discussed.

36
 6 CEMEX
The aim of the study is to determine the factors that lead to the failure of M&As in multinational
firms. In order to achieve this objective, the study will evaluate CEMEX.

6.1 About CEMEX

CEMEX S.A.B. de C.V. most commonly referred to as: CEMEX; is a Mexican Corporation
that produced building materials (Cemex, 2019). The firm has its headquarters in San Pedro Garza
Garcia. The firm manufactures and distributes its products in more than 50 countries. CEMEX is
one of the largest manufacturers and distributor of building materials in the globe. The firm was
formed following the merger of Cementos Hidalgo and Cementos Portland Monterrey in 1931
(Cemex, 2019). Table 6.1 provides a summary of the firm’s operations.

Table 6.1: Cemex Operations

Country Mexico USA Europe SCA&C AMEA Others* Total

Number of
Employees 9697 8617 5701 10720 3047 4242 42024
Number of Cement
Plants and Mills 15 11 16 21 4 - 67

Number of Ready-
Mix Cement Plants 256 327 107 719 81 - 1490

Number of
Aggregates Quarries 12 64 22 177 9 - 284
Source: Cemex (2019)
*Includes Staff performing corporate functions in different locations.

As illustrated in Table 6.1 the firm has operations in Mexico, United States of America (USA),
South Central America and the Caribbean (SCA&C), Africa, Middle East, and Asia (AMEA).
From its global operations, Cemex was able to produce 93 million tons of cement, 53 million metric
cubes of ready to mix concrete, and 150 million tons of aggregates in 2018 (Cemex, 2019).
Additionally, the firm produces complementary products such as asphalt, concrete block, roofing
materials, blast furnace slag, fly ash, pipes, and pre-cast products (Cemex, 2019).

37
6.2 Mergers and Acquisitions by Cemex
In the 1960s, the firm had significant growth following the acquisition of various plants and
factories throughout Mexico. In 1976, the firm was listed in the Mexican bourse and became the
largest cement producer in the country after it purchased three factories. The acquisition of cement
companies in Mexico in 1987 and 1989 resulted in the firm joining the top ten rank of largest
cement firms in the globe. The firm’s growth strategy entailed international expansion (Cemex,
2019).
The firm began to expand its manufacturing business internationally when it acquired the two
largest cement companies in Spain, Valenciana de Cementos and Cementos Sanson. In 1994, the
firm acquired Venezuela’s largest cement company Vencemos and several small factories in the
United States and Panama. In 1995, CEMEX acquired a cement firm in the Dominican Republic.
In 1996 the firm acquired majority stake in a Colombian cement manufacturing company. These
acquisitions allowed the firm to be the third largest cement company in the world. The company
continued its expansion trajectory with mergers and acquisitions in Asia and Africa. The firm
became the largest cement firm in the world after it acquired Southdown in the United States. In
2001, and in 2002 Cemex acquired firms in Thailand and Puerto Rico (Cemex, 2019).
In 2005, the firm acquired RMC Group for $ 5.8 billion, this made the firm the largest
producer of ready-mix concrete. The acquisition of RMC enabled the firm to enter the European
market in a significant manner. The firm had hoped that with the acquisition of RMC, would
increase production to 97 million tons per annum. This would result in income levels of
approximately $15 billion per year. In 2006, CEMEX merged with Rinker Group. CEMEX made
an investment of USD 14.2 billion to upgrade Rinker Group. According to Fajar (2017), CEMEX
used the M&A approach for two reasons. Firstly, M&As are time efficient, allowing CEMEX to
quickly take over the other firm’s resources and core competencies. The second is to manage the
barriers to entry. In 2006, Cemex had a market share of 87.6%, its closest rival had a market share
of 12.4% (Cemex, 2019).
In 2007 prior to the acquisition of Rinker, CEMEX had market capitalisation of more than
$24 billion and net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda)
of 1. By 2011, the market capitalisation of the firm had fallen to $3 billion and had an Ebitda of
7.16. The firm was having challenges paying its debtors (Thomson, 2011). During the period 2007
to 2015 the firm recorded income of less than $500 million. The financial challenges faced by the

38
firm were attributed to its M&A strategy (DeFotis, 2018). Table 4.1 summarises the M&As
undertaken by Cemex
Table 6.2: Mergers and Acquisitions Undertaken by Cemex

Year Mergers and Acquisitions Location

1982 Cementos Guadalajara Mexico
1989 Cementos Tolteca Mexico
1992 Valenciana de Cementos Spain
1992 Sanson Spain
1994 Vencemos Venezuela
1994 Bayano Cement Panama
1995 Cementos Nacionales Dominican Republic
1996 Cementos Diamante Colombia
1996 Samper Colombia
1997 Rizal Cementin Philippines
1999 Apo Cementin Philippines
1999 Assuit Cement Egypt
1999 Cementos Costa Rica
2000 Southdown Inc United States
2001 Saraburi Cement Company Thailand
2002 Puerto Rican Cement Company Puerto Rico
2005 RMC United Kingdom
2007 Rinker Australia
2009 WestZement GmbH, Beckum Germany
2009 OstZement GmbH Germany
2009 Construction Materials Florida, LLC United States
2009 Materials LLC United States
2009 Sunbulk Shipping N.V. Netherlands
2009 New Sunward Holding B.V. Netherlands
2009 Hungary Kft Hungary
2009 Polska Sp. Z.O.O. Poland
2012 Supermix LLC United Arab Emirates
2012 Falcon LLC United Arab Emirates
2012 Global Cement S.A. Guatemala
Source: Cemex (2018)
It should be noted that Cemex operates in more than 50 countries. This is possible because
in some cases the firms which Cemex acquired had subsidiaries in more than one country. For
example, Valenciana de Cementos of Spain had subsidiaries in the United Kingdom, Ireland, and

39
Poland (Cemex, 2019). Appendix 1 presents the subsidiaries of Cemex. Figure 6.1 summarises the
firm’s operations.

Figure 6.1: CEMEX Global Holdings

Source: CEMEX (2019)
Figure 6.1 show the holdings of CEMEX throughout the world. The holdings were achieved
through mergers, acquisitions, and/or purchase of stakes (CEMEX, 2019). The aim of these

40
transactions was to grow the firm’s presence internationally and to increase profits and sales.
Figure 6.2 shows the income realised by CEMEX during the period 1999-2018.

12,000,000

10,000,000

8,000,000

6,000,000
Net Income (USD)

4,000,000

2,000,000

0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(2,000,000)

(4,000,000)
Years

Figure 6.2: Net Income Realised by CEMEX (in '000' USD) 1999-2018
Source: Cemex (1990; 1995; 2001; 2006; 2011; 2018)

It can be seen from Figure 6.2 that the income realised by the firm during the period 1999-
2018 showed significant fluctuation. The income realised in 1999 was $ 1.03 billion. The income
grew to $ 2.47 billion in 2007 which represented a 139.81% increase (Cemex, 2001). However, by
2008 the firm’s profits had declined to $ 0.21 billion representing a decline of 1,091% decrease in
income. The firm realised negative income streams during the period 2010-2014. In 2015, the firm
posted profits of $ 64,880 million (Cemex, 2015). The income increased to $740,178 million in
2016 increasing to $ 884,275 million in 2017 (Cemex, 2018). However, the income fell to $ 581,
015 million in 2018. From Figure 4.2 it can be seen that the firm has not been able to realise the

41
growth in income it anticipated following its global mergers and acquisitions program (Cemex
2019). Figure 6.3 illustrates the sales realised by Cemex during the period 1987-2018.

30,000,000

25,000,000
Net Sales (000 USD)

20,000,000

15,000,000

10,000,000

5,000,000

0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Years

Figure 6.3: CEMEX Net Sales (1987-2018)

Source: Cemex (1990; 1995; 2001; 2006; 2011; 2018)

The findings summarised in Figure 6.3 shows that the net sales realised by CEMEX showed
significant variation during the period under review. During the period 1987 – 1995 the value of
sales was on a steady upward trend (Cemex, 1988; 1990; 1995). The growth in sales was attributed
to the geographical diversification strategy which allowed the firm to grow its product offering and
subsequently its market share both in Mexico and internationally. In the fiscal year 1996 the value
of sales decreased significantly from USD 26.96 billion to USD 3.37 billion. The decline was
attributed to high interest costs in the international markets which made it difficult for the firm to
acquire working capital; additionally, sales were affected by declining economic conditions in the
firm’s key markets. From 1997-2005 the value of sales realised by the firm continued to grow. This
growth was stimulated by continued geographical expansion, access to cheap raw materials and
labour, stable exchange rates, and growing consumption (Cemex, 2005). During the period 2007/8
there’s a 49% decline in the value of sales. This reduction was attributed to a decline in demand
for the firm products arising from the global financial crisis that was experienced during that period.
From 2008-2018 the value of sales realised by the firm has remained relatively lower than the pre-

42
financial crisis level. Figure 6.4 shows the trend in the total assets held by Cemex during the period
1987-2018.

100,000,000

90,000,000

80,000,000

70,000,000
Total Assets USD (000,000)

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Year

Figure 6.4: Cemex Total Assets (1987-2018)

Source: Cemex (1990; 1995; 2001; 2006; 2011; 2018)

The trend depicted in Figure 4.4 indicates that during the period 1987 to 1995 there was a
steady upward trend in the value of total assets held by Cemex. The increase was attributed to the
acquisition of cement plants and factories, and equipment. In 1996 there was a significant decline
in the value of total assets held by the firm (Cemex, 1997). The decline was attributed to the
removal of operating assets at the end of their useful lives from the books. Additionally, the firm
introduced the assets retirement obligations which reduced the value of assets held by the firm.
From 1997-2018 the firm continued to increase the value of total assets in its balance sheet mostly
through mergers and acquisitions (Cemex 1998; 2000; 2005; 2010; 2016; 2018). Figure 6.5 depicts
the debt held by Cemex during the period 1987-2018,

43
 45,000.00

40,000.00
Total Debt (000, 000 USD)

35,000.00

30,000.00

25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

-
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Year

Figure 6.5: Cemex Total Debt (1987-2018)

Source: Cemex (1990; 1995; 2001; 2006; 2011; 2018)

During the period 1987-1995 there was an upward trend in the value of debt held by the
firm. The firm used the debt to finance its M&A, acquire assets, expand operations, and for research
and design. There was a steep decline in the level of debt held by the firm in 1996. The decline in
the debt was attributed to the retirement of long-term debt held by the firm. The level of debt
remained constant during the period 1997-1999 on the concern by the firm’s investors of the
volatile economic conditions in domestic and global markets (Cemex 1998; 2000). From 2000-
2007 there was an increase in the level of debt for acquisition purposes and to finance the firms
working capital. From 2008-2018 there was a downward trend in the level of debt held by the firm.
This was attributed to a general slowdown in global sales, and slowdown in M&As thus reduced
demand for financing. Additionally, the decline in sales resulted in decline of income to repay the
loans.

44
 7 FINDINGS
This chapter presents the findings of the research. The information was gathered from the
interviews with the firm’s management, the company’s website and annual reports. The first
section provides demographic information about the respondents. The rest of the chapter presents
the reasons for mergers and acquisitions, process for mergers and acquisitions, challenges
experienced during the M&A process, reasons for failures, and remedies for failure.

7.1 General Information

Table 7.1 provides the current position of the study participants.

Table 7.1: Study Participants

Current Position Number

Executive Vice-President Corporate Affairs and Enterprise Risk
Management 1

Executive Vice-President Finance and Administration 1

Executive Vice-President Strategic Planning and New Business
Development 1

Executive Vice-President Global Commercial Development 1

President Asia, Middle East and Africa 1

President South and Central America and the Caribbean 1

President USA 1

President Mexico 1

President Europe 1

Total 9
Source: Cemex (2019)

The study participants included nine senior managers working at Cemex during the period
2019. The respondents were chosen because they formulate the M&A strategy for the firm,

45
implement the M&A strategy approved by the board of directors, and manage the M&A
performance. The gender of the study respondents was determined by the researcher. The findings
are summarised in Figure 7.1.

Female
Gender

Male

0 2 4 6 8 10
Number

Figure 7.1: Respondent's Gender

The findings summarised in Figure 7.1 shows that all the respondents were male. The
findings suggest that there is limited gender diversity in the top echelons of the firm. The study
sought to determine the number of years each of the respondents had been at the firm. The findings
are summarised in Table 7.2.

Table 7.2: Years of Experience

Number of Years Number

0-5 years 0
6-10 years 2
11-15 years 2
16-20 years 3
21-25 years 2
26 years and above 0
Total 9
Source: Cemex (2019)

46
 The findings summarised in Table 7.2 show that most of the respondents had been at the
firm for between 6-25 years. These findings suggest that the respondents have sufficient knowledge
of the firm’s operations to answer the research questions. The level of education of the study
respondents is summarised in Table 7.3.

Table 7.3: Respondent's Level of Education

Level of Education Number

Bachelor's 3
Masters 6
Doctoral 0
Total 9
Source: Cemex (2019)

The findings summarised in Table 7.3 shows that most of the respondents had attained
master’s level of education. These findings imply that the respondents had the requisite educational
competencies to undertake their job functions.

7.2 Mergers and Acquisitions Undertaken by Cemex

7.2.1 Reasons for Mergers and Acquisitions

The researcher sought to determine the reasons for M&As conducted by Cemex. Figure 7.2
summaries the reasons stated by the respondents.

Economies of Scale and Scope

Reasons for Mergers and

National Economic Trends

Acquisitions by Cemex

Emergence of Multinationals in the Global…

Investor Demands
Diversification
Market Power and Efficiency Gains
Entry into Foreign Markets
Technological Factors

0 1 2 3 4 5 6 7 8 9 10
Number of Respondents

Figure 7.2: Reasons for Mergers and Acquisitions by Cemex

47
(a) Technological Factors
Majority of the respondents indicated that a major reason for participation in M&As is to
acquire technological advantages. The respondents indicated that M&A with firms in countries
with advanced technological capabilities meant that the firm had immediate and complete access
to this technology. This reduced the cost and the risks associated with research and development.
The new technology augmented the production capabilities of the firm. The respondents indicated
that the acquisition of Southdown in the United States and RMC in the United Kingdom
significantly increased the firm’s technological capacities.
Further, eight of the respondents indicated that M&As allowed the firm to overcome
limitations within the country borders. The respondents indicated that some of the limitations
included the technical competencies of human capital. In more advanced countries the level of
research was more robust and the number of persons with advanced skills were higher. This was
particularly important as the products need to be constantly enhanced in order to ensure that they
kept up with the changing consumer demands and quality standards requirements.
(b) Entry into Foreign Markets
Six of the respondents indicated that the second major reason for M&As was that they were
avenues for entering into foreign markets. The firm is from Mexico; which, is a developing nation
with little outbound foreign direct investment. Five of the respondents indicated that the
acquisitions of Cementos Tolteca, Valenciana, Sanson, Vencemos, Bayano Cement, Cementos
Diamante, Samper, Rizal Cementin, Apo Cementin and Assuit were aimed at entry into new
markets. With these M&As the firm was able to enter markets in South America, the Caribbean,
Africa, and Asia.
The respondents indicated that after 1999, they felt that the firm had achieved international
expansion, the firm needed to strengthen its presence in the new spheres of operations. The firm
thus began acquiring firms that would enhance its brand position; these included the acquisitions
of Cementos which, was the largest cement manufacturer in Costa Rica which, entrenched the
firm’s position in Central America and the Caribbean. In the early, 2000s, the management of the
firm realised that in order to grow they would need to continue to expand into other markets. This
drove the firm to seek more M&As in other Latin American, European, African, and Asian
countries. The respondents indicated that the M&As were meant to provide a foothold and entry
into those markets. Some of the M&As were used as platforms for regional expansions this was
the case of those undertaken in North America, South America, and in Europe.
48
(c) Market Power and Efficiency Gains
All of the respondents indicated that the firm used M&A’s as a means of gaining market
power and efficiency gains. This was the main motivation for the horizontal M&A’s undertaken
by the firm. The merger between Cementos Hidalgo and Cementos Portland Monterrey in the
1960s resulted in the creation of Cemex. The merger helped the firms to consolidate their
operations and reduce inefficiencies. The acquisition of Cementos Guadalajara in 1982 ensured
that the firm was the main cement producer in Mexico controlling more than 85% of the cement
market. According to the respondents, M&As have efficiency gains through changes in the
enhanced productivity of the target firms existing manufacturing plants. This is achieved in two
ways. Firstly, the acquiring firm reallocates the existing resources to more efficient plants and/or
shuts down plants that are less efficient. In this approach, the M&A facilitates an increase in the
efficiency across the firms without impacting the plant-level productivity. Secondly, efficiency
gains of M&A come about through the achievement of economies of scale through non-
manufacturing activities of the firm for example: management, marketing, and advertisements are
consolidated.
Four of the respondents also indicated that for some inputs, it was technically impossible
to reduce the level, even when the levels of output were relatively low. These include
administrative and support services such as billing, purchase of materials, human resources
amongst others. These inputs are fixed and do not increase as the level of total output increases.
After M&A, the duplicated tasks are brought together under one department. Therefore, there are
no duplicated costs and the costs are spread over a larger level of combined outputs of the combined
firm. Economies of scale and efficiency gains are achieved by the elimination of the duplicated
fixed costs. Further, the respondents indicated that the elimination of duplication in fixed costs is
feasible across products and geographical regions.
(d) Diversification
Five of the respondents also indicated that the M&As were a means of diversifying away
from their core product, cement, and entering into new sectors. The respondents indicated that
diversification into developing nations was a strategy to ensure and stimulate growth. Additionally,
in order to keep up with the changing nature of the cement business, the organisation used M&As
as a means of diversifying the business by venturing into the ready-mix concrete and aggregates.
The company uses the strategy of differentiation to stimulate growth and expansion. The

49
respondents also indicated that the firm did not want to rely on only one product or region for its
income.
(e) Investor Demands
The four executive vice-presidents indicated that the merger and acquisition trends were driven
by the demands of the investors. According to the vice-presidents, the globalisation, the financial
crisis of 2007/8, and economic trends in the home country had stimulated the investors to demand
that the firm expand its product and regional operations. The internal growth of the company was
considered to be too slow and inefficient by a segment of the firm’s investors. The respondents
indicated that the investors based their arguments on the fact that the firm’s profits had increased
following their first international acquisition.
(f) The Emergence of Multinationals in the Global Cement Industry
Five of the respondents indicated that in the cement industry, the merger and acquisition
activities were stimulated by the emergence of the multinational concept. In order to be a global
leader, firms had to expand internationally as there was very little product movement across
national boundaries. The respondents indicated that traditionally, the cement sector is highly
fragmented and local. The weight of the product makes it difficult to transport the product over
long distances hence the production is limited to local areas. However, since the early 1980s, the
cement firms have consolidated their processes and expanded geographical regions so as to expand
market share and achieve firm growth. Two of the respondents indicated that vertical mergers and
acquisitions were undertaken to counter the competitive behaviour of other cement manufacturers.
The respondents indicated that there was a fear of collusive behaviour between the firm’s rivals
and suppliers. They explained that the sector had few suppliers, thus M&As by competitors could
create a large actor who could manipulate the supply process.
(g) National Economic Trends
Three of respondents indicated that economic trends in Mexico also influenced their decision
to expand globally and locally. In 1982, the Mexican Peso crushed. This undercut government led
nationally focused model that had been in place for several decades. The previous forced Mexico
to enter to the General Agreement on Tariffs and Trade (GATT) which was a precursor of the
World Trade Organisation. These changed the Mexican economy from national to international
economy. These required that the firm also adopt the internationalisation approach.

50
(h) Economies of Scale and Economies of Scope
The combination of more than one firm allowed for the bundling of resources, personnel,
knowledge and projects. The combination with other firms also allowed the firm to exploit the
complementary that comes with the unbundling and bundling of resources with the objective of
improving output levels and exploiting economies of scale. The respondents indicated that in
contrast to greenfield investments, M&As provide the firm with a wide scope of products and
markets. The products have already been customised to meet the needs of the local populace.

7.2.2 Process for the Mergers and Acquisitions

The study sought to establish the M&A process that was used by Cemex. The respondents indicated
that the process was broken down into ten stages as follows:
(a) Merger and Acquisition Strategy
At this stage, the firm’s management formulate strategies based on the business
environment. The management then send the strategies to the board of directors for approval. The
management have to clearly define the expected gains of M&As and identify the potential risks
faced. They have to demonstrate that the M&A is in line with Cemex overall strategy.
(b) Develop an M&A Search Criteria
The respondents indicated that the search criteria entail developing a list of potential factors.
The factors include geographic locations, past performance, customer base, growth prospects, and
country specific factors
(c) Identification of Potential Targets
The management use the identified criteria to search for potential target firms. The firms
need to meet at least 75% of the identified search criteria.
(d) Beginning Merging and Acquisition Planning
Cemex management make contact with the target firm. At this stage, the target firm is made
aware of the firm’s intentions. The target firm is asked to provide additional information which is
used for further evaluation.
(e) Performance Valuation Analysis
If the initial contact and conversation with the target firm are positive, the management of
Cemex ask the request to the target firm to provide more substantial information for example,
financial statements, and bank records that will enable the firm to make a full, and detailed

51
evaluation of the target firm. At this stage, the management evaluate the firm as a standalone entity
and one that is combined with Cemex.
(f) Negotiations
After developing several valuations of the target firm, the management of Cemex put
together an offer which, if approved by the board of directors, is offered to the target firm. Once,
the initial offer is made to the target firm, formal negotiations begin.
(g) Merger and Acquisition Due Diligence
According to the respondents, the process of M&A is full of uncertainty and unknowns
therefore, there must be exhaustive and extensive review of the target firm and the contracts. At
the due diligence stage, Cemex seeks to satisfy itself that the documents provided by the target firm
are in line with the actual position. The valuation of the firm is undertaken by third party to ensure
that it is adequate. The finances, customer base, operations, and employees are evaluated at this
stage.
(h) Purchase Agreement and Sales Contract
The respondents indicated that the due diligence stage, often uncovers unforeseen factors
that ultimately result in the collapse of the deal. If the due diligence does not bring up any factors
that result in the dismissal of the potential target firm, then the contract for sale is drawn up and
sent to the target firm. Both parties agree on the final purchase agreement and the terms and
conditions.
(i) Financing Strategy
The respondents indicated that prior to seeking approval from the board of directors to start
looking for a target firm, the management have to identify the sources and types of finances that
will be used to fund the deal. After, the sale agreement is reached then the firm finalises with its
bankers. The respondents indicated that they used debt to acquire other firms. Internal funds are
used to finance post-M&A activities.
(j) Closing and Integration
After payments are done, the financial contracts are signed, and the two firms begin to the
process of integration. The respondents indicated that the integration process is normally carried
out by top managers who go to the target firm. The target firm’s management then hand over to the
new management.

52
7.2.3 Challenges Experienced During the Merger and Acquisition Process
All of the respondents indicated that the process of M&A had numerous challenges and
pitfalls. Table 7.4 provides a summary of the challenges identified by each respondent.

Table 7.4: Challenges during the Merger and Acquisition Process

Current Position Challenges

Structuring the deal, competitor bids, environmental law,

Executive Vice-President Corporate Affairs and Enterprise Risk
Management
Executive Vice-President Finance and Administration
Executive Vice-President Strategic Planning and New Business
Development
Executive Vice-President Global Commercial Development
President Asia, Middle East and Africa
President USA
President Mexico
President Europe
President South, Central America, & the Caribbean
tax regulations and implications, types of financing,
integration challenges
Market conditions, labor laws, time period, technical
complexities, tax regulations and implications, corporate
law, formulating the deal, types of financing
Environmental law, integration challenges, time period,
financial and capital market regulations, tax regimes,
Sources of financing, anti-trust laws, negotiating the deal,
time period, too many consultants, corporate laws, labor
laws
Labor laws, corporate law, tax regime, environmental
groups and laws, market and economic conditions, length
of time,
Financing, capital market regulations, anti-trust laws,
corporate laws, structuring the deal, negotiations,
environmental considerations
Accounting and reporting challenges, financing,
environmental challenges, anti-trust laws, integration
challenges, time period, technical challenges,
Anti-trust laws, labor laws, integrations, financing, capital
markets regulations, negotiations, corporate law,
Tax systems and laws, financing, developing and closing
the deal, corporate laws and regulations,

According to the respondents properly structuring the deal takes into account many factors
including labour laws, financial and capital market regulations, corporate law, competitor bids, tax
regulations and implications, accounting and reporting issues, the market conditions, the type of
financing, and the specific items to be negotiated. The respondents indicated that M&A
transactions are subject to several laws and statutes both domestically and internationally. The laws
range from labour, employment, environmental, antitrust, insurance, and anti-corruption statutes.
Additionally, there are different regulations that determine the success of M&A.
The respondents indicated that securing financing for the M&A was often a challenge. The
respondents indicated that financing depends on the firm’s assets which were not adequate to meet
the financing requirements. The respondents indicated that debt financing attracted conditions from
53
the creditors. The respondents sighted the material adverse change (MAC) provision that places
penalties on the bidding firm because it has the possibility of withdrawing from the M&A. The
respondents also indicated that the banks place limits on financing as a means of curtailing the
ability of the bidding firm to withdraw from the transactions. These actions make the M&A difficult
because factors beyond the scope of the bidder can necessitate withdrawal.
The respondents also indicated that anti-trust laws were a major challenge. The respondents
indicated that in 2009 the Spanish government instituted criminal proceedings against the firm
siting that the mergers and acquisitions by Cemex had violated competitive practices in the
production and distribution of mortar, ready-mix concrete and aggregates. In 2010, Cemex was
found guilty of violating anti-trust laws. In 2017, the European Commission stopped the proposed
acquisition of Cemex Croatia by Heidelberg Cement and Schwenk. The commission stopped the
acquisition on grounds of violation of anti-trust laws. The commission was concern that the
acquisition would result in reduced competition and increased prices in Croatia.
One of the respondents indicated that the technical complexities of M&As required that all
the input from the analysts and specialists be incorporated during decision making. However, it
was difficult for one manager or a given group of managers to maintain a full grasp of the
transactions and the activities. All the respondents acknowledge that they did not have the in-house
capabilities to handle M&As thus, the firm had to rely on external specialists. The respondents
understood that the perspective of the specialists was important, but the many opinions offered by
the individual specialists challenging. The respondents further indicated that there were so many
people in the M&A process therefore knowing what was going on was often a challenge.
The timelines of the deal also added pressure to the process. One of the managers indicated
that he had to put together a team of more than 60 specialists including bankers, management
consultants, lawyers and their staff and staff from Cemex to analyse a proposed acquisition. Most
of the specialists had not worked together before. The review of the planned acquisition took more
than 14 days. The manager indicated that these examples highlighted the problems and challenges
of working with large groups of specialists who narrowly focus on their area of expertise leaving
Cemex manager to focus on the bigger picture.
The fragmented perspectives of the teams involved in the M&A process was also a
challenge. The respondents indicated that the M&A process involved various categories of
specialists such as accountants, bankers, tax specialists, lawyers, environmentalist, and anti-trust
specialists amongst others. All these specialists have independent objectives which often result in
54
a fragmentation of views which makes it difficult for the managers to integrate all their
perspectives. The respondents also indicated that the principals to the M&A deal, intermediaries
and third parties have their own agendas. The different agendas make the process of negotiations
and closing the deal to be protracted. The managers indicated that they often understood the
agendas of their counter parties, the intermediaries, and third parties but handling each groups
demand was not straight forward.
The respondents gave an example of environmentalist and environmental groups who
lobbied their governments not to allow M&As to go forward because for example, the production
of cement result in the production of dust. The respondents conceded that the environmentalist
concerns were valid and that the firm had taken measures to manage the amount of dust produced.
But they could not satisfy the environmentalist concerns for 100% dust free production process.
Negotiations with such groups made it difficult to close deals.
The respondents indicated that the transition period of the M&A is often challenging and full
of anxiety. The respondents indicated that theoretically, the identified reasons for mergers and
acquisitions are often sound and well thought out. However, challenges arise when the managers
try to make the two entities work together. The respondents also indicated that the transition period
is very challenging for the employees. This is due to the fact that the decisions for M&A are based
on organisational and product fit with little or no consideration for the wellbeing of the employees.
Some of the respondents indicated that during the transition period, employees are full of anxiety
and confusion. As a result, they reduce their efforts and commitment to the firm. During the
transition period, the level of staff turnover increases while production reduces. The respondents
further indicated that the transition period is normally marked by chaos, difficulties, and
disorderliness. The transition period is full of uncertainty. During the transition period there are a
lot of rumours amongst the staff. Some managers adapt to the changes while others become openly
hostile. Some workers find that they are useful while others find that they are no longer useful.
7.2.4 Reasons for Failure
The respondents indicated that the most significant failure was the acquisition of Rinker.
They lamented that acquisition of Rinker severely impaired the firm’s performance. The debt level
of the firm tripled which impaired operations across all business units. This resulted in the
downgrading of the firm’s Standards and Poor (S&P) investment rating. Further, the respondents
indicated that economic challenges in markets in which they operate meant that the performance

55
of the subsidiaries had not meet their expectations. Table 7.4 presents the M&As that failed or
performed below expectations.

Table 7.5: Cemex Mergers and Acquisitions that Failed or Below Expectations

Company Location
Failed
Sanson Spain
Vencemos Venezuela
Cementos Nacionales Dominican Republic
Cementos Diamante Colombia
Apo Cementin Philippines
CEMEX Cement of Louisiana, Inc. United States
Rinker Australia
RMC Pacific Materials, LLC United States
Cement Transit Company United States
Kosmos Cement Company United States
CEMEX UK Materials Limited United Kingdom
Below Expectations
Assuit Cement Egypt
Southdown Inc United States
Saraburi Cement Company Thailand
Puerto Rican Cement Company Puerto Rico
RMC United Kingdom
Construction Materials Florida, LLC United States
Materials LLC United States
Hungary Kft Hungary
Polska Sp. Z.O.O. Poland
Global Cement S.A. Guatemala
Hogan Island Limestone LLC United States
Immokalee Sand LLC United States
MILI LLC United States
OXI LLC United States
CEMEX Nicaragua, S.A. Nicaragua

Cemex Transportes de Colombia S.A. Colombia

Central de Mezclas, S.A. Colombia

The respondents indicated that there were those mergers and acquisitions that did not yield
the desired outcomes and those that failed outright. The Executive Vice President of Finance and
Administration indicated that they had certain expectations of the M&A such as becoming the
56
dominant cement manufacturer in the given market, so as to weaken the competitor’s position. For
example, the firm had hoped to gain dominance in the United Kingdom and the United States
through M&As, but they had not achieved this. The reasons for failure and under achievement are
summarised in Figure 7.3.

Substitutes

High enery costs

Overestimation of Synergies
Reasons for Failure

Complexities of Foreign Countries

Nationalisation of Venezuelan operations

Organisational culture

Economic conditions of host county

Competition

0 2 4 6 8 10
Number of Respondents

Figure 7.3: Reasons for Failure/Under Performance of Cemex Mergers and Acquisitions

(a) Competition
Nine of the respondents indicated that the major reason for the failures of the mergers and
acquisitions was the stiff competition in the sector. They indicated that by 2014 the firm was one
of the big four cement manufactures. The first was Lafarge with a capacity of 224 metric tonnes
per year, Holcim with a capacity of 218 metric tonnes per years, Heidelberg Cement with a capacity
of 122 metric tonnes per year, and Cemex with a capacity of 95 metric tonnes per year. Subsequent
mergers and acquisitions by the competing firms has changed the dynamic of the sector. The
merger of Lafarge and Holcim and the acquisition of Italcementi by Heidelberg Cement has seen
the capacity of the firms grow to 340 metric tonnes per year and 200 metric tonnes per year while
Cemex remains at 90 metric tonnes. The competition in the sector was watering down the gains
and efficiencies accrued by Cemex arising from its own M&A activity. The respondents indicated
that the firm cannot continue with M&A as it is inhibited by the debt it took up when acquiring
Rinker in 2007.

57
(b) Economic Conditions in Host Countries
Five of the respondents indicated that the economic conditions in the countries in which
they operate continued to materially impact their business, financial, and operating conditions. The
Vice-President for Finance and Administration explained that the overall performance of the firm
was dependent on the performance of its subsidiaries across the globe. The respondents indicated
that the financial crisis of 2007/8 significantly impaired its profitability. The aim of acquiring
Rinker was to strengthen its position in the United States. However, the financial crisis of 2007/8
had a negative effect on the real estate market. The price for real estate and the demand for real
estate decline significantly. This reduced the demand for cement and other construction materials
which significantly lowed the cash flow the firm was anticipating using to repay the funds
borrowed to acquire Rinker. The refinancing of the loans led to an increase in the cost of financing.
The firm has to thus sell some of its assets to meet its financial obligations. This reduced its
production levels and affected the outcome of its M&A.
Further, the President of Cemex operations in the United States indicated that despite the
efforts made by the monetary authority in the United States, the fed, to tackle the economic
challenges stemming from the financial crisis of 2007/8, the firm had not attained the level of
performance that was achieved prior to the economic downturn. The construction downturn still
significantly affected the housing and construction sectors which are the main clients of Cemex.
The President of Cemex Mexico indicated that the government of Mexico had put in place
measures to stimulate infrastructure development, however, the projects and funds dispersals were
inhibited by bureaucratic delays and implementation obstacles/. The President of Cemex Europe
indicated that the economies in the region were suffering from challenges arising from sovereign,
institutional, and financial crises. These challenges had resulted in austerity measures across the
region. These austerity measures were negatively impacting the performance of the subsidiaries in
this region.
In Central and South America and the Caribbean, the respondents indicated that there were
challenges of slowdown in economic activity. The President of this region indicated that earnings
were being impaired by lower exports to markets in the United States and Europe, lower
remittances, and lower commodity prices. This translated into lower earnings which had significant
and adverse effects on the demand and prices of products of the subsidiaries operating in this
region. The President of Cemex in Asia, the Middle East, and Africa indicated that the challenges
were due to political instability, war, and a slowdown in the Chinese and Indian economies.
58
Further, the low prices of oil in the Middle East and continued violence adversely affected
investment in the construction sector. In Africa there were also challenges of depreciating exchange
rates. The Executive Vice-Presidents of Corporate Affairs and Enterprise Risk and the Finance and
Administration indicated that due to geographic diversification, the revenues for the firm are
generated in numerous countries and paid in different currencies. However, some of the costs of
production such as fuel and energy are periodically adjusted to reflect changes in the value of the
U.S Dollar/Peso exchange rates. The vice presidents lamented that the adjustments often resulted
in loss of income and made it difficult to generate income.
(c) Organizational Culture
All the respondents indicated that the incompatibility of the different organisational cultures
was a source of failure. The respondents acknowledged that in order to achieve the strategic and
financial goals that motivated the M&A there needs to be a smooth consolidation of the combined
firms’ organizational cultures. The respondents decried the fact that the different firms had different
leadership styles, methods of communication, and management. Finding agreement was often a
challenge.
(d) Nationalisation of Venezuelan Operations
The respondents indicated that the M&As of plants in Venezuela occurred during a time
when the country’s economy was on an upward trajectory following the liberalisation of the
economy in 1989. The economy grew by 4.4% in 1990 and 9.2% in 1992. The firm felt that given
the high levels of income from petroleum Venezuela offered large opportunities for growth.
However, the growth momentum was not maintained as by 1995, the country was high by high
inflation rates which exceeded 100%. In 1998, the country experienced a banking crisis. The
economy begun to recover in the 2000s supported by high oil prices. By 2007, the economy
begun to decline with resulted in a decline in the demand for housing which negatively affected
the income realised by Cemex.
The firm further suffered a blow when its operations in Venezuela were nationalised. The
government had taken this action to protect the national interest by reducing the amount exported
from the country. At the time of the announcement, the value of Cemex operations in Venezuela
was $ 1.8 billion. The firm had expected to be compensated immediately. However, it took more
than 3 years to receive compensation which amounted to $ 600 million. The respondents
indicated that with a single announcement from the government the firm had lost its investment
and growth opportunities.
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(e) Underestimation of the Complexities of Foreign Acquisitions
The respondents indicated that the process of mergers and acquisitions entails a focus on
synergies. The firm focuses on the legal, financial, and economic aspects of the transactions and
use simulation models to make the buying decision. The respondents indicated that the
management of foreign entities can be very complicated. The process is riddled with challenges
that the management cannot predict. The respondents indicated that foreign markets have
complex political, economic, legal and social differences. The respondents pointed out the fact
that in areas of operations such as Europe, there were efforts by the European Union to facilitate
cross-border transactions by integrating the financial markets, monetary policy, fiscal policy and
legislations. However, there was no harmonisation of the tax systems and not all the members of
the union used the euro currency. This made it difficult for the firm to harness its management
experience within the continent, integrate all units, and reduce duplications.
Additionally, the acquisition of plants in the United Kingdom was meant to facilitate entry
into the European market. However, the vote by the United Kingdom to leave the union had not
been contemplated. The departure would limit the firm’s access to the European market. In Asia,
Africa, and South America, the respondents indicated that the major challenges were political
risks, counterfeits, high levels of corruptions, underdeveloped infrastructure that increased the
cost of doing business or hampered business. The multiple languages and currencies also made
it difficult to conduct cross border transactions.
(f) Overestimation of the Synergies
All of the respondents indicated that they overestimated the synergies that would accrue by
acquiring Rinker in Australia. The management had expected high returns, geographical
expansion, and increased assets. Rinker was chosen because it was a profitable firm that would
help to promote Cemex in the ready-mix product market. The management of Cemex had expected
to use their expertise to standardise the production processes at Rinker to make the process more
efficient. The management thought that the integration of Rinker into their management and
production process would not be complicated.
The respondents indicated that the acquisition of Rinker was financed using debt. This
increased the debt burden and the risk profile of Cemex which made it difficult to obtain further
financing for its other operations. The firm focused on the geographical expansions and the
synergies that would arise without fully taking into consideration the economic conditions in
Australia and abroad. Additionally, the cost of the acquisition was extremely high, and the risks of
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failure were not well thought out. Cemex experienced challenges in attempts to generate cash flows
and financing to develop synergies during the post-merger period. The respondents also indicated
that attaining the strategic fit between the firm and the target was often a challenge. They intimated
that on paper the subsidiary is thought to be able to contribute to the parent company’s strategy.
However, in reality, the firm is not able to fulfil the objectives of the parent firm.
(g) High Energy Costs
The respondents indicated that the process of producing cement consumes a lot of energy.
The conversion of limestone and chalk into cement requires temperatures of above 950 degrees
Celsius. A large amount of electricity is needed to grind the raw materials. The respondents
indicated that energy costs were taking up a large part of the margins that could have been realised.
The respondents indicated that energy costs across the subsidiaries range from 20% - 40% of the
total production costs. The cost of energy across the globe differs. In developing countries, the
costs of energy are very high with little or no substitution for petroleum or electricity.
The President of Cemex Asia, Middle East, and Africa indicated that the cost of energy and
fuel in his region of operations was significantly affected by the war and security challenges in the
regions, further, the respondent said that the governments in this region tax extra the oil which
significantly increases the costs of production.
(h) Innovation of Substitutes
The Executive Vice President for Strategic Planning and New business development
indicated that performance of the M&As was significantly and negatively impacted by the
innovation of products that were substitutes of the products developed by the firm. The respondent
gave examples of plastics, aluminium, ceramics, glass, wood, steel that could be used as substitutes
for cement, concrete, or aggregates. Further, the Presidents of Cemex Mexico, South and Central
America and the Caribbean, Asia, and Middle East and Africa indicated that the introduction of new
construction techniques and modern materials had reduced the demand for cement in markets that
the firm had envisioned would use cement as the primary construction material.
7.2.5 Remedies for the Failures
(a) Rebalance of Portfolio
The respondents indicated that over the last few years, the firm had developed strategies to
streamline and reposition the portfolios it held in order to optimise the return on investments. To
achieve this objective, the firm was optimising its portfolio by focusing on markets that had the
greatest potential for long-term growth and disposing of assets that would not enhance efficiency.
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The respondents indicated that in the year 2018 the firm had disposed of assets worth $ 2.0 billion.
The sale of these assets allowed the firm to free up funds for operations and to retire some of its
outstanding debts. The respondents also indicated that the rebalance of the portfolio entailed the
acquisition of assets that would accelerate the growth of the firm. The firm was using the metropolis
centric approach to determine new investments. The respondents indicated that the areas of organic
growth for the firm were in emerging markets in Africa and Asia as such they had rebalanced the
firm’s operations to take advantage of the opportunities within these markets.
According to the respondents, the sale of non-core assets was limiting their sphere of
operations. The sale of Cemex Latin American Holdings had reduced the sphere of operations for
the firm. The firm’s major presence was in the United States. However, according to the
respondents these sales were important as they would improve the firm’s credit rating from B+
which was four levels below the investment grade. The firm has approximately 43% of the
production capacity outside the Americas. However, the rebalancing of the portfolio will result in
the sale of assets in Thailand, Bangladesh, and Philippines. In the European Union, the firm has
been forced to downsize its operations in Germany by sale of its plats to Holcim. The respondents
indicated that an improvement in the credit status would allow the firm to grow its presence in
organic markets like Africa which had shown significant growth over the last two decades.
(b) Enhanced Sales
The firm had initiated aggressive sales and marketing strategies to increase the volume of
good that it sold throughout the world. The respondents indicated that they were using product,
pricing, promotion, and place strategy to ensure that their products and services were available to
customers across the globe. For example, the firm had sold off its subsidiaries in Spain and
remained with only two entities in which the firm had consolidated the production of its products.
Similarly, the firm had consolidated its investments in South and Central America by selling off
plants in Brazil, Colombia, Costa Rica Guatemala, Nicaragua, Panama, and El Salvador. The
consolidation in Latin America was through investments, acquisitions, and divestures.
(c) Operational Improvements
The respondents indicated that they had undertaken an extensive review of their operation
and identified areas for improvements. These improvements had resulted in higher profitability,
delivery of higher quality products, and reduction in the number of staff. The operational
improvements entailed improving the operational performance and rationalisation of expenses
through increased efficiency of the cement plants by operating new models, reduction of
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maintenance costs, and optimisation of third-party services. The respondents also indicated that the
firm was using digital platforms to reduce the costs of managing customers. Additionally, the firm
had identified suppliers who offered goods at lower costs.
(d) Alternative Energy Sources
The respondents indicated that they had turned to alternative sources of fuel with emphasis
being put on the higher refuse derived fuel (RDF). Due to the significant impact of energy on the
production process, the Executive Vice Presidents indicated that the firm had introduced the
department of energy and sustainability. The department was tasked with reducing the costs of
energy, identifying alternative sources of energy, and putting in place an energy management
system. The respondents indicated that the department had developed processes and products that
allow the firm to reduce the amount of heat used in the kilns, which had significantly reduced
energy costs.
(e) Refinance Agreements
The respondents indicated that a health balance sheet was important for them to return to
sustained growth and to be profitable. The firm had reviewed its financial strategies to focus on
three elements namely, delivering of commitments to the creditors and other financial stakeholders,
reducing financing risks, and minimising financial costs. The firm had taken efforts to reduce their
debt levels by extending the maturity schedule and raising new capital. The Executive Vice
President of Finance and Administration indicated that in 2009, the firm entered into a financing
agreement worth approximately U.S. $ 15 billion through syndicated and bilateral bank facilities,
and private placements.
(f) Divestment and Right Sizing
In the face of a challenging global business environment, the firm had adopted their
operations to take account of the current market realities. The respondents indicated that the aim
of the firm was now not to grow in size but to grow in scale as such they were very conservative
with mergers and acquisitions. Further, the firm had set a target of reducing operational and
corporate costs by $150 million each year. The firm had been able to achieve its goals from 2010-
2018. The cost reduction and right sizing were achieved by evolving the firm to be leaner, more
agile, and flexible.
(g) Organisational Culture
All the respondents indicated that in order to address the frictions that arise during the M&A
process, the firm had put in place measures to ensure that the employees were engaged though out
63
the M&A process. The employees were empowered to go beyond the traditional titles,
responsibilities and roles. The management sent out regular fliers to inform all its employees of its
plans and to obtain feedback. The respondents felt that this approach helped to integrate the firms.
(h) Research and Development
The Executive vice presidents indicated that the firm that the firm had increased its
expenditure on research and development. The aim was to increase the market share in the markets
that they currently operate in. The respondents indicated that the firm has eight laboratories
dedicated to innovation. The main laboratory is located in Switzerland, it is dedicated to
continuously improving and consolidating the research and development efforts in cement,
concrete, aggregates, admixtures, mortar, and asphalt technology. Three of the executive vice
presidents indicated that the firm investing in its own research and development in order to limit
its need into going to M&As in order to gain technologies and new knowledge.

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 8 DISCUSSIONS
This chapter presents an analysis and discussion of the responses and data collected in the
previous chapter. The analysis focused on the reasons for mergers and acquisitions, the process of
mergers and acquisitions, the challenges experienced during the process, the reasons for failure,
and the remedies to the failures.
8.1 Reasons for Mergers and Acquisitions
(a) Technological Factors
The respondents indicated that the aim of M&As was to acquire knowledge, skills, and assets.
These findings confirm the arguments put forward by Luo and Tung (2007) that firms from
emerging markets use M&As as springboards to enhancing their knowledge and capabilities. These
allow the firms to attain competencies that reside in overseas entities, to overcome shortcomings
and to gain a foothold in the global sphere. These findings suggest that Cemex is driven by the
desire to enhance its capabilities and capacity through the use of subsidiaries. The findings suggest
that Cemex is able to acquire strategic assets in developed countries. The findings suggest that the
M&As allow firms from less developed countries to acquire strategic assets and attain skills that
are lacking in their home country. These findings confirm the findings of Peng (2012) and Buckely,
Doh, and Benischke (2017).
(b) Entry into Foreign Market
Over the past decades, there has been significant integration of markets. This has resulted in
the formation and strengthening of economic and regional blocks such as the European Union,
Arab Maghreb Union, the Community of Sahel-Saharan States, Common Market for Eastern and
Southern Africa, Southern Common Market, Eurasia Customs Union, Mercosur amongst others.
These trading and regional blocks abolish the barriers to trade amongst member states (Kleinert &
Klodt, 2000). The free flow of capital, labour, and trade between the firms means that M&As are
viable means for foreign firms to gain access to lucrative markets. Foreign acquisition targets have
been found to be attractive to bidders as the target firm is familiar with the local consumers’ tastes
and preferences, laws and regulations, labour market, distribution networks, suppliers, consumers,
and competitors (Qui & Zhou, 2006). These factors make it easier for the bidder to begin operations
in the foreign market.
(c) Market Power and Efficiency Gains
The findings of the study suggest that when firms merge or are acquired the immediate
consequences is the creation of a more dominant firm. The firms achieve comparative advantages
65
given that the business costs are reduced, there is better resource allocation, and reduction in the
work force which results in reduction in labour costs. Hankir et al (2011) established that M&As
augment the market power of the firms by reducing the potential and actual level of competition.
Similar to the findings of this thesis, Ashenfelter, Hosken, and Weinerg (2014) found
evidence that M&A transactions in almost every sector of the economy other than petroleum result
in increased market power for the firms. Further, when analysing the effect of M&A activity using
micro-level data from a wide range of firms McGuckin and Nguyen (1995), Bertrand (2008) found
that productivity and market power of the firms, particularly those in the manufacturing sector
increases after M&A.
(d) Diversification
Research has established that M&As are good alternatives for firms that want to grow and
expand their businesses by increasing their product offering, and expanding their geographical
areas of operations (Tiwari, 2015). The findings suggest that M&As allows the firm to fast track
their growth and expansion strategies by simply merging or acquiring firms that have achieved the
growth and markets that they desire.
(e) Investor Demands
The respondents intimated that the investors had demanded that the firm undertake M&As.
According to Blonigen and Pierce (2016), the market price of a firm share increases upon the
announcement of M&A. This was attributed to the fact that M&A activity generally results in
greater market power, increased sales, reduction in costs, and the realisation of efficiency gains
which increase the profitability of the firm. The profits are distributed to the shareholders of the
acquiring firm.
(f) Emergence of Multinationals in the Global Cement Industry
The respondents indicated that their firm Cemex undertook M&As because other players
in the industry were conducting such business transactions. A review of trends in the production of
cement globally shows that the business is dominated by a few players. According to the
Bouhamidi (2018), and Global Cement (2019) the global production of cement is dominated by a
few players due to the wave of M&As that occurred over the last few decades. Figure 8.1 indicates
the value of M&As undertaken in the global cement industry.

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 M&A Values in Cement Industry in
70
63
60 57
USD Billions
50 46

40 36
33
30 27
23
20 18
15 16 14
11 12
9 10 8
10 5

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 8.1: Mergers and Acquisitions in Global Cement Industry

Source: Bouhamidi (2018); Global Cement (2019).

The trend depicted in Figure 8.1 and the responses given by the interviewees suggests that
growth within the global cement industry is achieved through M&A transactions.
(g) National Economic Trends
The respondents indicated that there were numerous reasons for undertaking mergers and
acquisitions by Cemex Limited. The investors indicated that the financial crisis of 2007/8 resulted
in demand for mergers and acquisitions by the firm. These findings confirm the findings of
Thompson (2014). According to Thompson (2014) the value of M&As undertaken after the
financial crisis of 2007/8 increased by more than 25% with the firms using this approach as a means
to survive and as avenues for growth. The respondents indicated that the financial crisis across the
world particularly currency and interest rate variations affect their performance. The respondents
indicated that they were not able to control such variables. The respondents indicated that they
could only react to the shocks. These findings confirm the postulations of industrial organisations
and economics. These schools of thought postulate that mergers and acquisitions are stimulated by
economic, legal, and technological shocks (Coakley, Fu, & Thomas, 2010; Coase, 1937; Mueller
& Weichselbaumer, 2012).

67
(h) Economies of Scale and Economies of Scope
The responses given by the respondents confirm the postulations put forward in the
Efficiency Theory. The theory maintains that when two firms come together there are synergies
that arise that are advantageous to both firms.
(i) Economic Trends
The respondents indicated that M&A activity was stimulated by economic trends in Mexico
and globalisation. According to Lankauskiene and Tvaronaviciene, (2011) and Simelyte and
Antanavicience, (2014) the attractiveness of international M&As has been growing over the last
two decades. These have been stimulated by globalisation, government support, and the
international community through entities like the World Trade Organisation (WTO). Further, Allen
and Overy (2011), Bruner (2004), and Dorata (2012) indicate that the performance of the domestic
economy and economic cycles motivates firms to undertake cross border M&A activities.
8.2 Process of Mergers and Acquisitions
The responses given suggest that the process of M&A used by Cemex follows the Watson
Wyatt Deal Flow Model described by Ai and Tan (2017). Table 8.1 provides a comparison of
the M&A process used by Cemex and the Wyatt Deal Flow Model.

Table 8.1: Comparison of Cemex and Wyatt Deal Flow

Wyatt Deal Flow Model Cemex Process

Strategy formulation, development of search criteria, identification of

Formulation potential target

Location Beginning of M&A planning,

Investigation Performance valuation analysis, due diligence

Negotiation Negotiation, purchase agreement and sales contract, finance strategy

Integration Closing and integration

Source: Author’s Compilation (2019)

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 8.3 Factors that lead to the Failure of the Mergers and Acquisitions
(a) Stiff Competition
The findings of the study suggest that the size of the firm matters. One of the strategies used
by competitive firms is M&As so as to attain efficiency gains and to control the market (Tiwali,
2015). Therefore, in order to be competitive, firms need to expand their geographical reach by
acquiring and merging with other firms and their competitors. The findings of the study confirm
the arguments put forward by Hankir et al (2011) in the market power hypothesis. According to
Hankir et al. (2011), M&As of competitor firms have an anticompetitive effect on the industry
which results in negative externality as the other firms in the industry cannot compete effectively,
incur higher costs of competing with larger firms, and lose completive advantage in their
geographical strongholds.
(b) Organisational Culture
The respondents indicated that different organisational cultures contributed to the failures
of the firms M&As. These findings confirm the findings of the Akeng and Olang’ (2017) who
found that mergers of commercial banks were hampered by the incompatibility of the two
organisations culture. Akeng and Olang’ (2017) established that for the consolidation of the
organisations to be successful, there must be a harmonised leadership style, communications, and
cooperation. Similarly, Ashley (2016) established that firm’s performance did not increase after
M&A due to post-acquisition challenges. Key amongst these challenges was the communication
breakdown.
(c) Economic Conditions of the Host Countries
The findings of the study indicate that the financial crisis of 2007/8 had a significant and
negative effect on the outcomes of the M&A activities. These findings are in line with the findings
of Shakina and Barajas (2014) who established that the macroeconomic conditions both locally
and internationally affect the firms’ performance. Households, firms, and governments take actions
to minimise the impact of the financial crisis. Similarly, Clarke, Cull, and Kisuko (2012) found
that bank specific, industry specific and macroeconomic factors affect the performance of the firm.
The gross domestic product (GDP) has been shown to have a statistically significant effect on firm
performance. Increased growth in the GDP contributes to increased economic activity and
increased household income which results in the increase in the consumption of cement and its
related products (Global Cement, 2019).

69
 The findings of the study suggest that the when making the decision to undertake M&As
the firm has to take into consideration economic conditions that prevailing within the country,
expectations of future economic conditions, and the political risks. According to Fuchs and Lederer
(2017), an important consideration for multinational firms undertaking cross-border markets are
the organic and inorganic growth opportunities which can arise from operations in foreign
countries. However, the firms fail to fully model and account for political and economic risks
associated with operations particularly in areas of volatility such as Africa, Middle East and Latin
America. The findings suggest that the firm did not fully take into consideration the factors that
affect the working of the economies in which they operate.
(d) Nationalisation of Venezuelan Operations
The review of literature suggests that mergers and acquisitions are preferred vehicles for
entry into foreign markets. However, the findings of the study suggest that countries can erect
barriers to entry or seek to exclude firms that have already entered their markets. The government
of Venezuela took over the assets of cement manufacturers such as Cemex, Lafarge, and Holcim
because the firms were exporting all the cement that they produced and charged high prices for
cement sold in Venezuela (Reuters, 2011). The findings suggest that countries are open to foreign
direct investments but have limits to the activities and actions of the entities operating within its
borders.
(e) Underestimation of Complexities of Foreign Acquisitions
Literature suggests that M&As are avenues through which firms from emerging economies
can use to overcome the limits in their home countries, attain new markets, and upgrade their
existing knowledge base. However, the findings of the study indicate that the M&As are not as
simple as the managers would prefer. The challenges occur because of the emerging market
multinational corporations do not have the institutional capabilities to operate efficiently and
effectively in foreign markets.
(f) Overestimation of Synergies
The findings of the study confirm the findings and conclusions of Scot et al (2004) who
established that M&As fail due to lack of information about the management, customers, and
market share of the target firm. The findings also confirm the findings of Recardo and Torerhi
(2015) and Thompson (2019) who established that M&As fail because the bidding firm
overestimate the benefits of the acquisition. The findings suggest that there are shortcomings with
the due diligence procedures used by Cemex.
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(g) High Energy Costs
The finding that energy costs are adversely affecting the performance of Cemex confirm
the findings of Panhans, Lavric, and Hanley (2017). According to Panhans et al. (2017), for
manufacturing firms the costs of energy and electricity often affect the performance of the firm.
Further, Panhans et al (2017) established that the costs of energy determine the decision of the firm
to move into or out of a country. The findings suggest that Cemex needs to review the costs of
operating in given countries depending on the costs of energy.
(h) Innovation of Substitutes
The findings of the indicate that substitutes can cause M&As to fail even in the cement industry.
Previous studies Wade and Jare (2010) and Shuka (2014) showed that the development of
substitutes in the technology and telecommunication sectors led to the failure of AOL and Time
Warner and Yahoo and MSN.

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 9 CONCLUSIONS AND RECOMMENDATIONS
This chapter provides the conclusions based on the findings and discussions, highlights the
contributions of the study, and summarises the limitations of the study.
9.1 Conclusions Based on Study Findings
Based on the findings, the following conclusions are made:
(i) The study concludes that for multinational firms, the performance of the M&A deal is not only
measured in terms of the profits realised. The performance is indicated by the ability to expand
geographical reach, ability to keep up with the competition, ability to overcome the limitations
in the home country, ability to acquire new technologies, ability to reduce transportation and
handling costs, and the ability to diversify.
(ii) It is concluded that experience of the bidding firm in M&A activities across the globe is
necessary but not sufficient to guarantee positive and/or desired outcomes.
(iii)The theories associated with M&A stipulated that the coming together of two firms will result
in synergies for both firms. Similarly, academics argue that if there are no gains expected from
M&As then there would be no point to them (Akenga & Olang’, 2017; Wadhwa & Syamala,
2015). Both academics and theory predict that value creation as a result of M&A will be
positive. However, the findings of the study led to the conclusion that this is not necessarily the
actual outcome of M&As. This is because of the challenges associated with the combination of
two firms, dynamism of the business environment and the responses by the firm’s competitors.
(iv) The study concludes that the internal environment of the firms, which takes into consideration
culture, affects the outcome of the M&A. The employees of the respective firms need time to
accustom to each other. Unfortunately, in an ever-changing business environment, there is not
enough time to allow for different sets of employees and organisations to adapt to each other
which results in organisational failure.
(v) The study established that M&A activity is widespread amongst the large cement
manufacturers worldwide. This activity results in the reallocation of assets and technology
amongst the firms, especially from advanced economies to less advanced economies. Related
to this, cross-border M&As act as a means of international investment by multinational firms.
(vi) The study established that there has been significant consolidation through mergers and
acquisition by the large cement factories in the world. These consolidations have produced
major cement companies. The study concludes that the cross-border M&As have resulted in

72
 the concentration of ownership of cement firms globally to a few firms. Continued trends of
M&A will result in further concentration of ownership in the cement industry.
(vii) The study also concludes that cross-border M&As has increased competition in the cement
sector. For example, Cemex felt the pressure to grow larger both nationally and internationally
or face the risk of being acquired or outmanoeuvred by competitors.
(viii) The respondents indicated that their firm was rebalancing its portfolio in order to meet its
cash flow requirements, and to pay off its debt. The findings suggest that the firm has not been
able to grow after its acquisition of Rinker in 2007. The fact that the firm intends to continue
disposing of its assets leads the researcher to conclude that the firm is losing its geographic
coverage. It is beginning to look like it specialises in a given area, rather than being a
multinational firm.
(ix) The findings of the study suggest that in the cement industry in order to remain viable there
must be local and international acquisitions. The study concludes that the trend of major
mergers and acquisitions in the cement industry might result in the merger with other firms or
the acquisition of Cemex by another firm.
(x) The findings of the study suggest that the pre-merger, merger, and post-merger processes
should take into consideration the integration
(xi) The study concludes that although the benefits of M&A are clear, they present risks that can
substantially affect the overall performance of the firm.
(xii) The study concludes that the cost of energy affects the performance of the firm. The study
also concludes that failure to take into consideration all the production costs can result in
failure.
(xiii) The study concludes that the firm has sufficient financing or adequate financial arrangements
to undertake the M&A deal but lacks sufficient resources and capabilities needed in the post-
acquisition period which limits the firm’s ability to realise the full benefit of the M&A deal.
(xiv) The study concludes that there are often significant cultural differences between the target
firm and the bidding firm. These differences create challenges in the integration process.
9.2 Recommendations
Based on the findings. The following recommendations are made:

73
(i) It is recommended that the management of Cemex should enhance their due diligence when
conducting mergers and acquisitions. This will help the firm identify the actual synergies that
are attainable.
(ii) It is recommended that the management of Cemex should allocate sufficient resources to the
post-acquisition and implementation processes. This will enable the firm to realise the full
benefits of M&A.
(iii)It was established that the high cost of energy was affecting the performance of subsidiaries of
Cemex. It is recommended that the firm should relocate their business entities to areas where
the costs of energy are favourable.
(iv) The findings suggest that the firm does not fully take into consideration the microeconomic and
macroeconomic conditions of the economies in which the target firms operate. This results in
failure and performance below the expected level. It is recommended that the firm should
develop projects and simulations to model changing economic conditions.
9.3 Contributions and Implications
Fundamental questions in finance, management, economics and industrial organisation
studies concerns the motivations and the effects of M&A activities. A review of theories and
empirical studies show that there is no consensus on the motivation and the effects of M&A. Yet
understanding the motivations and effects in different industries and setting adds more knowledge.
This study provides knowledge on M&A in the cement industry while most studies focus on
banking and financial sector. Further, extant literature shows that the rate of failure of M&As is
significantly high. However, firms across the globe continue to undertake such transactions. This
thesis provides an understanding of the factors that motivate firms to undertake M&As despite the
high levels of failure and the associated risks and challenges.
Extant literature mostly focuses on the M&As of multinational corporations from
developing nations. Despite the growing trend of firms in emerging markets participating in M&As
there is little research on this area. This thesis fills the knowledge gap on the subject matter by
reviewing a firm from the emerging markets. The findings of the study indicate that the reasons for
mergers and acquisitions are not primarily for profits or economic gains, the findings of the study
extend the rationale for the RBV theory and the market power theory.
The findings of the study have managerial implications for acquirers from emerging
markets. The executives should carefully consider their expectations, the cost of post-merger
period, the complexities of operating in different markets, the conditions that prevail in host
74
countries, and their capabilities in handling new ventures. These factors are important as they
impact the performance of M&A irrespective of the experience the managers have in conducting
M&A in different countries and of different magnitudes. Each transaction should be carefully
considered and evaluated.
9.4 Limitations of the Study
The findings of the study depend on the ex-post opinions of the senior managers of the firm.
It is my opinion that some of the responses given by the respondents are flawed self-justification.
The respondents gave responses that painted them in a favourable light blaming factors such as
government policy, employees, changing economic situations while not taking into consideration
they own failings. For example, the management was using debt financing to pay for the M&As
undertaken by the firm, without fully considering the effect of debt on operations of the firm.
Further, the management has been undertaking M&As despite the net effect on firm earnings and
profitability being low. This suggest that the M&A drives could be motivated by hubris and/or
overconfident managers.

75
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 LIST OF TABLES

Table 2.1: Transactions that can be considered as Mergers and Acquisitions ................................ 9
Table 4.1: Failure Factors for M&As ............................................................................................ 29
Table 6.1: Cemex Operations ........................................................................................................ 37
Table 6.2: Mergers and Acquisitions Undertaken by Cemex ....................................................... 39
Table 7.1: Study Participants ......................................................................................................... 45
Table 7.2: Years of Experience...................................................................................................... 46
Table 7.3: Respondent's Level of Education ................................................................................. 47
Table 7.4: Challenges during the Merger and Acquisition Process ............................................... 53
Table 7.5: Cemex Mergers and Acquisitions that Failed or Below Expectations ......................... 56
Table 8.1: Comparison of Cemex and Wyatt Deal Flow ............................................................... 68

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 LIST OF FIGURES
Figure 1.1: Product Life Cycle ........................................................................................................ 7
Figure 3.1: Mergers and Acquisitions Process .............................................................................. 20
Figure 5.1: Conceptual Framework ............................................................................................... 30
Figure 5.2: Case Study Data Collection Techniques ..................................................................... 33
Figure 5.3: Corporate Structure CEMEX ...................................................................................... 35
Figure 6.1: CEMEX Global Holdings ........................................................................................... 40
Figure 6.2: Net Income Realised by CEMEX (in '000' USD) 1999-2018 ..................................... 41
Figure 6.3: CEMEX Net Sales (1987-2018).................................................................................. 42
Figure 6.4: Cemex Total Assets (1987-2018)................................................................................ 43
Figure 6.5: Cemex Total Debt (1987-2018) .................................................................................. 44
Figure 7.1: Respondent's Gender ................................................................................................... 46
Figure 7.2: Reasons for Mergers and Acquisitions by Cemex ...................................................... 47
Figure 7.3: Reasons for Failure/Under Performance of Cemex Mergers and Acquisitions .......... 57
Figure 8.1: Mergers and Acquisitions in Global Cement Industry ................................................ 67

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 ABBREVEIATION AND ACRONMYS

EU European Union

MAC Material Adverse Change

M&As Mergers and Acquisitions

OFDI Outward Foreign Direct Investment

R&D Research and Development

RDF Refuse Derived Fuel

S&P Standards and Poor

WHO World Health Organisation

WTO World Trade Organisation

UNCTAD United Nations Conference on Trade and Development

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 INTERVIEW GUIDE
This interview guide is designed to collect information from the senior management of CEMEX.
The questionnaire seeks to investigate the mergers and acquisitions undertaken by CEMEX.

Section 1: Respondents Profile

1. Current Position in the Firm

2. Gender
3. Number of years at the firm
4. Level of Education

Section2: Mergers and Acquisitions Undertaken by Cemex

5. What were the main reasons for the mergers and acquisitions undertaken by
CEMEX?

6. What is the M&A process used by the firm?

…………………………………………………………………………………………..
…………………………………………………………………………………………..

7. What are the challenges faced during the merger and acquisition process?
…………………………………………………………………………………………..
…………………………………………………………………………………………..

8. Identify the failures and the reasons that lead to the failures?
…………………………………………………………………………………………..
…………………………………………………………………………………………..

9. What are remedies put in place to remedy the failures?

…………………………………………………………………………………………..
…………………………………………………………………………………………..

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 APPENDICES
Appendix1: List of Cemex Subsidiaries as at December 31st, 2018

1 CEMEX México, S.A. de C.V. Mexico

2 CEMEX Operaciones México, S.A. de C.V. Mexico
3 Empresas Tolteca de México, S.A. de C.V. Mexico
4 CEMEX Central, S.A. de C.V. Mexico
5 CEMEX Energía S.A.P.I. de C.V. Mexico
6 TEG Energía, S.A. de C.V. Mexico
7 Cementos Guadalajara, S.A. de C.V. Mexico
8 Cementos Tolteca, S.A. de C.V. Mexico
9 Servicios Cemento Cemex, S.A. de C.V. Mexico
10 CEMEX Agregados, S.A. de C.V. Mexico
11 Compañía Minera Atoyac, S.A. de C.V. Mexico
12 Servicios Profesionales Cemex, S.A. de C.V. Mexico
13 Sinergia Deportiva, S.A. de C.V. Mexico
14 Asesoría Especializada en Inmuebles, S.A. de C.V. Mexico
15 Inmobiliaria Ferri, S.A. de C.V. Mexico
16 Concretos Monterrey, S.A. de C.V. Mexico
17 Pro Ambiente, S.A. de C.V. Mexico
18 Servicios Proambiente, S.A. de C.V. Mexico
19 Inmobiliaria Rio San Martin, S.A. de C.V. Mexico
20 Servicios Para La Autoconstrucción, S.A. de C.V. Mexico
21 CEMEX Concretos, S.A. de C.V. Mexico
22 Cementos Anahuac, S.A. de C.V. Mexico
23 CEMEX Internacional, S.A. de C.V. Mexico
24 Comercializadora Construrama, S.A. de C.V. Mexico
25 Proveedora Mexicana de Materiales, S.A. de C.V. Mexico
26 Mercis, S.A. de C.V. Mexico
27 CEMEX Construcción, S.A. de C.V. Mexico
28 CEMEX Transporte, S.A. de C.V. Mexico
29 Servicios Promexma, S.A. de C.V. Mexico
30 Construmexcla, S.A. de C.V. Mexico
31 Tu Casa de Materiales TUCAMA, S.A. de C.V. Mexico
32 BIM Infraestructura, S.A. de C.V. Mexico
33 Materiales Para CASA MATCASA, S.A. de C.V. Mexico
34 La Única Casa de Materiales, S.A. de C.V. Mexico
35 CEMEX Aditivos, S.A. de C.V. Mexico
36 Global Construction Systems, S.A. de C.V. Mexico
37 Servicios Concreto CEMEX, S.A. de C.V. Mexico

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38 CEMEX Vivienda, S.A. de C.V. Mexico
39 Transportes Especializados Multicarga, S.A. de C.V. Mexico
40 New Sunward Holding B.V. The Netherlands
41 RMC Holdings B.V. The Netherlands
42 APO Cement Corporation Philippines
43 CEMEX Holdings Philippines, Inc. Philippines
44 Solid Cement Corporation Philippines
45 CEMEX Asia Holdings Ltd. Singapore
46 CEMEX Construction Materials Pacific LLC USA
47 CEMEX International Trading LLC USA
48 CEMEX Materials LLC USA
49 CEMEX Construction Materials Florida LLC USA
50 CEMEX, Inc. USA
51 CEMEX Finance LLC USA
52 CEMEX Corp. USA
53 Transenergy, Inc. USA
54 CEMEX Holdings, Inc. USA
55 Sunbelt Investments Inc. USA
56 CEMEX Global Sourcing, Inc. USA
57 CEMEX Admix USA, LLC USA
58 CEMEX Construction Materials South LLC USA
59 CEMEX Construction Materials Atlantic LLC USA
60 CEMEX Cement of Louisiana, Inc. USA
61 RMC Pacific Materials, LLC USA
62 Cement Transit Company USA
63 Kosmos Cement Company USA
64 CEMEX Nevada LLC USA
65 New Line Transport LLC USA
66 CEMEX Construction Materials Houston LLC USA
67 CEMEX Leasing LLC USA
68 Readymix Materials Holdings LLC USA
69 Twin Mountain Rock Company USA
70 Guernsey Stone Co. USA
71 Western Equipment Company USA
72 CEMEX Steel Framing, Inc. USA
73 CEMEX AM Holdings LLC USA
74 CEMEX Caribbean LLC USA
75 CEMEX SW Florida Limestone Holdings LLC USA
76 CEMEX SW Florida Sand Holdings LLC USA
77 Hogan Island Limestone LLC USA
78 Immokalee Sand LLC USA
79 MILI LLC USA

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80 OXI LLC USA
81 Mineral Resources Technologies Inc. USA
82 VAPPS, LLC USA
83 ALC Las Vegas Mining Claims LLC USA
84 LV Western Mining Claims LLC USA
85 CEMEX Southeast Holdings LLC USA
86 CEMEX Southeast LLC USA
87 Ready Mix USA LLC USA
88 Cemento Bayano, S.A. Panama
89 CEMEX Concretos, S.A. Panama
90 Pavimentos Especializados, S.A. Panama
91 CEMEX Colombia, S.A. Colombia
92 Cemex Premezclados de Colombia S.A. Colombia
93 Cemex Transportes de Colombia S.A. Colombia
94 Central de Mezclas, S.A. Colombia
95 Neoris Colombia S.A.S. Colombia
Zona Franca Especial Cementera Del Magdalena Medio
96 Colombia
S.A.S. (Zomam S.A.S.)
97 CEMEX España, S.A. Spain
98 CEMEX España Operaciones, S.L.U. Spain
99 CEMEX Latam Holdings, S.A. Spain
100 CEMEX Jamaica Limited Jamaica
101 CEMEX (Costa Rica), S.A. Costa Rica
102 CEMEX Nicaragua, S.A. Nicaragua
103 CEMEX El Salvador, S.A. Salvador
104 CEMEX Haiti Haiti
105 Assiut Cement Company Egypt
106 CEMEX France Gestion (S.A.S.) France
107 CEMEX Deutschland AG Germany
108 CEMEX Holdings (Israel) Ltd. Israel
109 CHEMOCRETE LTD. Israel
110 Israel America Aggregates Ltd. Israel
111 Lime & Stone Production Company Ltd. Israel
112 Readymix Industries (Israel) Ltd. Israel
113 Kadmani Readymix Concrete Ltd. Israel
114 CEMEX UK UK
115 CEMEX Investments Limited UK
116 CEMEX UK Operations Limited UK
117 CEMEX UK Cement Limited UK
118 CEMEX UK Marine Limited UK
119 CEMEX Paving Solutions Limited UK
120 CEMEX UK Materials Limited UK

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121 CEMEX UK Services Limited UK
122 CEMEX UK Properties Limited UK
123 RMC Explorations Ltd UK
124 The Rugby Group Ltd UK
125 RMC Russell Ltd UK
126 Mineral and Energy Resources (UK) Ltd UK
127 CEMEX Hrvatska d.d. Croatia
128 Menkent, S. de R.L. de C.V. Mexico
129 CEMEX de Puerto Rico, Inc. Puerto Rico
130 CEMEX Holdings (Malaysia) Sdn Bhd Malaysia
131 CEMEX Dominicana, S.A. Dominican Republic
132 CEMEX Polska sp Z.o.o. Poland
133 CEMEX SIA Latvia
134 CEMEX Czech Republic, s.r.o. Czech Republic
135 CxNetworks N.V. The Netherlands
136 Neoris N.V. The Netherlands
137 New Sunward Holding Financial Ventures B.V. The Netherlands
138 CEMEX AS Norway
139 Sunbulk Shipping Limited Barbados
140 CEMEX LAN Trading Corporation Barbados
141 Arawak Cement Company Limited Barbados
142 CEMEX France Gestion (S.A.S.) France
143 Gestión Integral de Proyectos, S.A. Guatemala
144 Cementos de Centroamérica, S.A. Guatemala
145 Cemex Guatemala, S.A. Guatemala
146 Equipos para uso de Guatemala, S.A. Guatemala
147 Global Concrete, S.A. Guatemala
148 CEMEX Perú, S.A. Peru
149 Cemex Supermix L.L.C. United Arab Emirates
150 Cemex Topmix L.L.C. United Arab Emirates
151 CEMEX ARABIA FZC United Arab Emirates
152 Cemex Falcon L.L.C. United Arab Emirates
153 Lomez International B.V. The Netherlands
154 Cemex Research Group AG Switzerland
155 CEMEX Asia B.V. The Netherlands
156 CEMEX Egyptian Investments B.V. The Netherlands
157 Cemex Africa and Middle East Investments B.V. The Netherlands
158 Interamerican Investments, Inc. USA
159 Cemex Trademarks Holding Ltd. Switzerland
160 AB Akmenes cementas Lithuania
161 CEMEX Argentina, S.A. Argentina
162 Trinidad Cement Limited Trinidad and Tobago

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 163 Caribbean Cement Company Limited Jamaica
164 Mustang Re Limited Bermuda
165 Falcon Re Ltd. Barbados
166 Apollo Re Ltd. Barbados
167 Torino Re Ltd. Barbados
168 CEMEX NY Corporation USA
169 CEMEX Imports, Inc. Puerto Rico
170 CEMEX Finance Latam B.V. The Netherlands
171 Cemex International Holding AG Austria
Source: Cemex (2019)

97