International Expansion Strategies

Challenges and Benefits of M&A in International Markets

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 CORPORATE RESTRUCTURING
GROUP 3

Agni Nurlaila Fania Naomi Hutauruk

2306188166 2306188361

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 Distinguishing between Developed and Emerging Economies

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 GLOBALLY INTEGRATED VERSUS SEGMENTED CAPITAL MARKETS

Globally Integrated Capital Markets: Segmented Capital Markets:

Provide access to local and foreign capital Show different prices for the same assets in
markets. different regions.
Factors include reduced trade barriers and Segmentation due to capital controls or
harmonized tax laws. investor preference.
Improved accounting standards and Investors in segmented markets face higher
governance encourage cross-border flows. local risk.
Lower transaction costs due to technology Firms without global market access have
advancements. higher capital costs.
Multinational firms can raise funds easily, Local factors impact small firms more than
reducing capital costs. large firms in some countries.
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 MOTIVES FOR INTERNATIONAL EXPANSION

UTILIZATION OF
GE OG RAP HI C ACCELERATING INDUSTRY LOWER RAW
& IND U ST R I AL
DIVE RS I FIC AT IO N GROWTH CONSOLIDATION MATERIAL AND
LABOR COST

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 MOTIVES FOR INTERNATIONAL EXPANSION
L EVE RAGI NG AVOIDING
IN T A NGIBL E MINIMIZING ENTRY
AS S ETS TAX LIABIITIES BARRIERS

FLUCTUATING FOLLOWING
EXCHANGE CUSTOMERS
RATES

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 COMMON INTERNATIONAL
MARKET ENTRY STRATEGIES
The method of market entry chosen by a firm reflects the
firm’s risk tolerance, perceived risk, competitive
conditions, and overall resources.

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 Property and creditor rights protected by the courts

M&A more likely if.... (Klaus et al., 2007)

Target broadens acquirer’s knowledge (Ferreira et al.,
2005; Vermeulen and Barkema, 2001)
Target’s growth allows rapid market penetration (Hennart
and Reddy, 1997; Brouthers and Brouthers, 2000)
Entrant wants to protect specific competencies from local
competitors (Brouthers and Brouthers, 2000)
Entry barriers are high (Anand and Delios, 2002; Delios
and Beamish, 1999; Dunning, 1993; Anderson et al., 1997)
Cultural differences are low (Harzing, 2002; Kogut and
Singh, 1988)
Acquirer large relative to target (Raff et al., 2006, 2008;
Harzing, 2002; Kogut and Singh, 1988)
Acquirer has a high tolerance for risk (Kogut and Singh,
1988)
Acquirer has experience in market (Harzing, 2002;
Vermeulen et al., 2001; Brouthers et al., 2000; Pehrsson,
2008)
Acquirer late in entering market (Wilson, 1980)
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 Solo more likely if....

Entry barriers are low (Anand and Delios, 2002; Anderson et al.,
1997)
Cultural differences are high (Harzing, 2002)
Entrant has multinational experience (Brouthers and Brouthers,
2000; Barkema and Vermeulen, 1998; Wilson, 1980)
High-tech acquirers want to use their own employees to minimize
training costs (Brouthers and Brouthers, 2000)
Control is important (Hennart and Park, 1994)
Property and creditor rights protected by the courts (Klaus et al.,
2007)

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 JV more likely if....

Difficult to separate out unwanted assets if M&A entry strategy selected

(Hennart and Reddy, 1997)
New entrant has limited experience in target market (Barkema and
Vermeulen, 1998; Hennart and Reddy, 1997)
Postmerger integration problems appear high (Hennart and Reddy, 1997)
Cultural differences high and entrant risk adverse (Harzing, 2002; Child et al.,
2001; Kogut and Singh, 1988)
Barriers to entry high and entrant lacks necessary resources (Meyer, 2005;
Peng, 2003; Brouthers, 2002; Elango, 2004)
Entrant desires greater strategic flexibility (Inkpen and Beamish, 1997;
Hoffman and Schaper-Rinkel, 2001)

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 Export more likely if....

Firms face high fixed costs in own country requiring maintenance

of high operating rates (Greenaway et al., 2007)
Entrants have limited experience in operating in local country
(Davis et al., 2000)
New entrant is risk adverse (Davis et al., 2000)
Barriers to a physical presence onsite are large (Pan and Tze,
2000)

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 STRUCTURING CROSS-
BORDER TRANSACTIONS

Acquisition Vehicles
1. Acquisition Vehicles for Non-
U.S. Firms
2. Challenges in Cross-Border
Acquisitions
3. Legal Considerations in
Different Jurisdiction

5K 5K 5K

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 STRUCTURING
CROSS-BORDER Form of Payment
U.S. sellers typically favor cash
Form of Acquisition

TRANSACTIONS
payments in cross-border deals.
Receiving shares of a foreign
acquirer can be less appealing
due to:
1. SEC registration requirements
for resale
2. Complex compliance with
state-level securities laws
3. Potential illiquidity of foreign
shares
4. Lack of familiarity with the
foreign company
While a foreign buyer may
acquire shares or assets directly,
share acquisitions are generally
the simplest form of acquisition.
Pros
Streamlined process.
No need to seek individual
approvals from third parties
Cons
Liabilities & limited disclosure

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 STRUCTURING
CROSS-BORDER Tax Strategies
Foreign acquirers may aim for a
Hybrid transactions..?

TRANSACTIONS
tax-free reorganization (merger).
Target company shareholders
swap stock for the acquirer's
stock.
Requires complex structuring:
US subsidiary of the foreign
acquirer
Foreign acquirer needs 80%+
ownership of the US
subsidiary.
Hybrid transactions offer
flexibility to satisfy both the
acquirer and target
shareholders.
Some shareholders exchange
stock for preferred shares in a
tax-free manner.
Others sell common stock for
cash, incurring a taxable
gain/loss.

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 FINANCING CROSS-
BORDER TRANSACTIONS
Debt is commonly used to finance cross-border deals.
Sources include capital markets in the acquirer's
home country, the target's local country, or a third
country.
Financing options include bridge financing, credit
lines, bond markets, and equity markets.

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 PLANNING AND IMPLEMENTING CROSS-BORDER TRANSACTIONS
IN EMERGING COUNTRIES
Entering emerging economies poses a host of new challenges not generally encountered in developed countries, which include
a range of political and economic risk
POLITICAL AND ECONOMICAL RISK
political and economic risks include excessive local
government regulation, confiscatory tax policies, restrictions
on cash remittances, currency inconvertibility, restrictive
employment policies, outright expropriation of assets of
foreign firms, civil war or local insurgencies, and corruption.
USING INSURANCE TO MANAGE RISK
The decision to buy political risk insurance depends on the size
of the investment and the perceived level of risk.
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SOURCES OF INFORMATION
Information sources include consultants in the local country,
joint venture partners, a local legal counsel, or appropriate
government agency, such as the U.S. Department of State
USING OPTIONS AND CONTRACT LANGUAGE
TO MANAGE RISK
In emerging countries, where financial statements may be
haphazard and gaining access to the information necessary to
adequately assess risk is limited, it may be impossible to
perform an adequate due diligence. Under these
circumstances, acquirers may protect themselves by including
a put option in the agreement of purchase and sale.
 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

Arus kas yang didiskontokan (DCF) adalah metode keuangan yang digunakan perusahaan dan investor untuk menilai
pengembalian investasi mereka di masa depan, seperti pembelian peralatan, perekrutan karyawan baru, perluasan bisnis,
atau evaluasi perusahaan yang akan dibeli.

Converting Foreign Target Cash Flows to Acquirer Domestic Cash Flows

Cash flows of the target firm can be expressed in its own currency including expected inflation (i.e., nominal terms), its own currency
without inflation (i.e., real terms), or the acquirer’s currency.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

When Target Firms Are in Developed

(Globally Integrated) Capital Market
Countries
Cash flows of the target firm can be expressed in its own currency
including expected inflation (i.e., nominal terms), its own currency without
inflation (i.e., real terms), or the acquirer’s currency.

Note that ($/e)0 and (e/$)0 represent the spot rate for the dollar-
to-euro and euro-to-dollar
exchange rates, respectively; R$n and Ren represent the interest
rate in the United States and
the European Union, respectively.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

When Target Firms Are in Emerging

(Segmented) Capital Market Countries
Cash flows are converted as before using the interest rate parity
theory or the purchasing power parity theory. The latter is used if
there is insufficient information about interest rates in the
emerging market.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

GLOBAL CAPM FORMULATION

(DEVELOPED COUNTRIES)
In globally integrated markets, nondiversifiable or systematic
market risk is defined relative to the rest of the world. Therefore,
an asset has systematic risk only to the extent that the
performance of the asset correlates with the overall world
economy.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

APPLYING THE FISHER EFFECT

The so-called Fisher effect states that nominal interest rates can
be expressed as the sum of the real interest rate (i.e., interest
rates excluding inflation) and the anticipated rate of inflation.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

GLOBAL CAPM FORMULATION (EMERGING COUNTRIES)

iTo estimate the cost of equity for a firm in an emerging economy
(ke,em), Eq. (17.5) can be modified for specific country risk as
follows:

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 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

Estimating the Local Firm’s Cost of Debt in Emerging Markets

The cost of debt for an emerging market firm (iemfirm) should be
adjusted for default risk due to events related to the country and
those specific to the firm.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 VALUING CROSS BORDER TRANSACTIONS
The methodology for valuing cross-border transactions using discounted-cash-flow analysis is similar to that employed when
both the acquiring and target firms are within the same country.

Cost of Capital
The weighted-average cost of capital (WACC) is the broadest measure of the
firm’s cost of funds and represents the return that a firm must earn to induce
investors to buy its common stock, preferred stock, and bonds.

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 EVALUATING RISK USING SCENARIO PLANNING
As an alternative to making seemingly arbitrary adjustments to the target firm’s cost of capital, the acquirer may incorporate
risk into the valuation by considering alternative economic scenarios for the emerging country. The variables that define these
alternative scenarios could include GDP growth, inflation rates, interest rates, and foreign exchange rates.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 Case Study:
Wal-Mart’s International Strategy
Illustrates the Challenges and the
Potential of Global Expansion

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 e from
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r 2 0% n i f ican
ve g si
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Wal-Mart’s International Strategy
2 ca
l y ear s , indi
a n
o f fisc e r atio
As o p
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Illustrates the Challenges and the
t i
rna
inte

Potential of Global Expansion

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 1. Misapplication of Success Formula: Despite Wal-Mart's proven success in the U.S., it
underestimated the competitiveness of German retailers.
2. Cultural Differences: Resistance to Wal-Mart’s corporate practices (mandatory group chants
and smiling) & Anti-Romance Policy
3. Regulatory and Labor Union Challenges : Regulations limiting extended hours and pricing
tactics, along with labor union opposition, hindered the company's ability to implement its
strategies effectively.
4. Possible Management Missteps....? Consolidation & Brain Drain: The post-acquisition
consolidation of headquarters led to a loss of experienced executives and likely impacted
operational stability.
5. Industry Challenges: Wal-Mart's difficulties in Germany mirrored challenges faced by other
multinational retailers like Nestle and Unilever. Carrefour, Wal-Mart's global competitor,
deliberately avoided entering the German market due to its complexities.

ON JULY 30, 2006, THE BEHEMOTH ANNOUNCED THAT IT WAS SELLING

ITS OPERATIONS IN GERMANY TO GERMAN RETAILER METRO AG AT A
$1 BILLION PRETAX LOSS.

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 South Korean consumers expected to see local products
presented in a localized fashion; this is probably the main
reason why South Koreans did their shopping at E-Mart
rather than Wal-Mart.
Walmart entered South Korea in 1998 and its withdrawal in 2006 can again be
attributed to three main issues: the concept of value, cultural shopping habits and
the use of local management (Kim, 2008)

1998 Wal-Mart was ranked in the

Wal-Mart acquired four
stores and six undeveloped
sites in South Korea. At the
time, the units were
operated as Makro stores
(3 in Seoul, 1 in Taejon).
mere bottom five major
discount stores in all of South
Korea. According to Wal-Mart’s
spokesperson, Wal-Mart South
Korea had sales of about 750
billion won ($787 million) in
2005
In fact, at a subsequent
press conference in Seoul, it
was revealed that the
company had operating
losses of nearly 9.9 billion
won ($10 million) in 2005.
2006
The mistakes that Walmart made
in South Korea damaged its
reputation so much that the
company sold 16 storest to
Shinsegae Co. for $872 million in
May 2006 and withdrew from
South Korea altogether.

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 Cultural Sensitivity:
The decision to retain the Massmart
name and introduce changes
gradually shows a desire to avoid
alienating customers and employees.
Respecting Labor:
Public commitment to honoring labor
agreements signals Walmart learned
from its German struggles, aiming to
build positive relations from the start.
Adapting to Regulations:
A focus on product changes rather
than disrupting operations suggests
an acceptance of needing to work
within local rules.
Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan
Tailored Value Proposition:
Understanding German shoppers'
preferences taught Walmart the importance
of offering what customers in each market
truly value.
Flexible Ownership:
100% ownership of Asda (UK), 68% of Wal-
Mart de Mexico, and less than 100% of
Massmart to maintain local investment
(and national identity) as well as South
African market listing.
Local Leadership:
Keeping Massmart management in place
aims to avoid the "brain drain" experienced
in Germany.
 PT PERTAMINA INTERNASIONAL EKSPLORASI PRODUKSI (PIEP) CASE STUDY
Pertamina Internasional EP (PIEP) merupakan satu-satunya Anak Perusahaan dari Subholding Upstream (SHU) yang
diamanatkan untuk melaksanakan eksplorasi serta produksi minyak dan gas (migas) dengan wilayah kerja operasi di luar negeri.

Pertamina Internasional EP (PIEP) bergerak melakukan

Pertamina (Parent Company) memiliki inovasi dalam mengakuisisi dan mengelola lapangan
aspirasi “Menjadi perusahaan global energi migas overseas serta mencari sumber-sumber migas di
berbagai negara. Tujuannya, untuk pemenuhan
terdepan dengan nilai pasar US$100B” kebutuhan migas domestik serta mendukung
ketahanan energi nasional.

JOURNEY AKUISISI PT PERTAMINA INTERNASIONAL EKSPLORASI PRODUKSI (PIEP)

2013 2014 2016 2017

PIEP mendirikan PT
Pertamina Irak Eksplorasi
Produksi yang akan
menjalankan kegiatan
operasional atas aset PIEP
yang berlokasi di Irak.
PIEP mendirikan PT Pertamina
Algeria Eksplorasi Produksi
(PAEP) yang akan menjalankan
kegiatan operasional atas aset
Perusahaan yang berlokasi di
Aljazair
2016 perubahan nama dari
Conoco Phillips Algeria hasil
dari proses akuisisi oleh PT
Pertamina (Persero) pada
tanggal 18 Desember 2013
PIEP resmi menguasai 72,65%
saham M&P setelah
menyelesaikan proses
Voluntary Tender Offer atas
seluruh saham dan bond milik
M&P.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 PT PERTAMINA INTERNASIONAL EKSPLORASI PRODUKSI (PIEP) CASE STUDY
PT Pertamina (Persero) menandatangani kesepakatan akuisisi ConocoPhillips Algeria Ltd, anak
perusahaan Conoco Phillips

PT Pertamina mengakuisisi anak perusahaan ALGERIA IN 2013

migas multinasional asal AS, ConocoPhillips,
ConocoPhillips Algeria Ltd, yang menguasai
Blok 405a di Aljazair dengan perkiraan nilai
Rp16,8 triliun.

Mega akuisisi ini akan dapat menambah produksi

Pertamina secara signifikan dalam waktu cepat dan
dengan minyak mentah berkualitas tinggi, yaitu
sebesar 23.000 barel per hari,

tambahan cadangan untuk

Pertamina dari blok itu ditaksir
lebih dari 100 juta barel minyak.
Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan
,‫ الجزائر‬:Arab( Aljazair, juga dikenal dengan nama Algeria
translit: al-jazā'ir , /al-jaza-ir/, Bahasa Berber: ⴷⵣⴰⵢⴻⵔ,
resminya bernama Republik ,)/Dzayer/, Prancis: Algérie
Demokratik Rakyat Aljazair, merupakan sebuah negara di
.pesisir Laut Tengah, Afrika Utara
 PT PERTAMINA INTERNASIONAL EKSPLORASI PRODUKSI (PIEP) CASE STUDY
PT Pertamina (Persero) menandatangani kesepakatan akuisisi ConocoPhillips Algeria Ltd, anak
perusahaan Conoco Phillips
Inflation subsided in 2013
but preexisting and emerging
macro-financial
vulnerabilities need to be
tackled. Inflation rose to 8.9
percent in 2012—the highest
level in 15 years—following a
surge in current spending
that resulted in excess
liquidity. Inflation has
decelerated thus far in 2013.

Fakultas Ekonomi dan Bisnis Universitas Indonesia - G3 Restukturisasi Perusahaan

 PT PERTAMINA INTERNASIONAL EKSPLORASI PRODUKSI (PIEP) CASE STUDY
PIEP telah berkomitmen memberikan kontribusi dengan membawa hasil produksi dari luar negeri ke Indonesia (Bring Barrels
Home) untuk memenuhi kebutuhan kilang PT Pertamina (Persero) maupun peluang penjualan hasil luar negeri ke pihak ketiga demi
mengoptimalkan pendapatan (Bring Revenue/Value Home)

Kinerja PT Pertamina Internasional Eksplorasi Produksi (PIEP) terus meningkat

ASSET LABA
In Million Dollar ROA ROE
In Million Dollar
1000 1000
Series 1 Series 1
1200 1000

500 500
1000
500
800 0 0

600 0
-500 -500

400
-500
-1000 -1000
200

0 -1000 -1500 -1500

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