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THE BUSINESS Global Mergers and Acquisitions, Finance and Financial
SOOFI • ZHANG
EXPERT PRESS Management Collection
DIGITAL LIBRARIES
Volume II
Combining Companies Across Borders John A. Doukas, Editor
EBOOKS FOR
BUSINESS STUDENTS Second Edition
Curriculum-oriented, born-
digital books for advanced
business students, written
Abdol S. Soofi • Yuqin Zhang
This book primarily deals with corporate restructuring through mergers
Global Mergers
and Acquisitions,
by academic thought and acquisitions (M&As). It critically examines all functions that must
be performed in completing an M&A transaction. Domestic and cross-
leaders who translate real-
border M&A’s are very similar in many respects even though differences
world business experience between them also exist. The book includes discussions of international
Volume II
into course readings and finance and multinational financial management, the topics that arise
reference materials for in cross-border M&A transactions.
students expecting to tackle Given the increasing importance of China as the second largest
management and leadership
Combining Companies
economy in the world and Chinese companies’ growing merger and
challenges during their acquisition (M&A) activities globally, we devote the last two chapters of
Across Borders
M&A activities. Moreover, the second volume includes the case studies
POLICIES BUILT regarding Chinese foreign direct investment both in Greenfield and
BY LIBRARIANS acquisition forms give additional insights into challenging tasks of due
diligence and post-merger cultural integration that foreign investors face.
• Unlimited simultaneous
usage
The M&A literature is a fragmented field of inquiry. The book brings
together important, practical insights from this vast literature in a short,
Second Edition
• Unrestricted downloading but cohesive form that has high managerial relevance.
and printing
• Perpetual access for a Abdol S. Soofi has taught at the University of Wisconsin–Platteville, at
one-time fee the School of Business Administration, the University of Wisconsin–
• No platform or Milwaukee, and many high-ranking, selective universities in China.
Soofi has published many scholarly papers in academic journals such
maintenance fees
as Journal of Royal Statistical Society A, Quantitative Finance, International
• Free MARC records
Journal of Forecasting, Economic Letters, Journal of Policy Modeling, among
• No license to execute
other journals. Soofi’s published books deal with international busi-
The Digital Libraries are a ness, nonlinear dynamics and finance, and development of science and
comprehensive, cost-effective technogy in Iran. Soofi has served as the guest editor of a spcial issue
way to deliver practical of Technological Forecasting and Social Change, and is currently serving as
guest editor of special issues for Economic and Political studies, and Journal
Abdol S. Soofi
treatments of important
business issues to every
of Science and Technology Policy Management.
Yuqin Zhang
student and faculty member. Dr. Yuqin Zhang received her doctoral degree in Management Science
and Engineering in 2004 from Academy of Mathematics and Systems
Science, Chinese Academy of Sciences. She is assistant professor in Eco-
nomics at the University of International Business and Economics, and
she has published several research papers in journals such as Journal of
For further information, a Economic Studies, Journal of Internal Trade (in Chinese), and Journal of Sys-
free trial, or to order, contact: tems Science and Complexity.
sales@businessexpertpress.com
Finance and Financial
www.businessexpertpress.com/librarians
Management Collection
John A. Doukas, Editor
Global Mergers and
Acquisitions, Volume II
Global Mergers and
Acquisitions, Volume II
Combining Companies
Across Borders
Second Edition
Abdol S. Soofi
Yuqin Zhang
Global Mergers and Acquisitions, Volume II: Combining Companies
Across Borders
Copyright © Business Expert Press, LLC, 2018.
10 9 8 7 6 5 4 3 2 1
Keywords
business valuation, cost of capital, cross-border acquisition, cultural inte-
gration deal structuring, exchange rate, FDI and national security, foreign
direct investment, merger and acquisition, strategy, target selection, real
options, regulatory agencies
Contents
Preface to the First Edition......................................................................xi
Preface to the Second Edition.................................................................xiii
Acknowledgments................................................................................... xv
Introduction........................................................................................xvii
Part II Cross-Border M&A Activities of Chinese
Enterprises........................................................................ 1
Chapter 14 China’s Outbound Foreign Direct Investment....................3
Chapter 15 Major Issues in Chinese Cross-Border Mergers and
Acquisitions.....................................................................15
Part III Case Studies of China’s Mergers and
Acquisitions Abroad ...................................................... 41
Notes....................................................................................................61
References..............................................................................................63
Index....................................................................................................67
Preface to the First Edition
This book primarily deals with corporate restructuring through mergers
and acquisitions (M&As). It examines all functions that must be per-
formed in completing an M&A transaction. Domestic and cross-border
M&As are very similar in many respects even though differences between
them also exist. The book also includes discussions of topics of interna-
tional finance and multinational financial management that inevitably
arise in cross-border M&A transactions.
Given the increasing importance of China as a global economic leader
as well as Chinese companies’ growing outbound merger and acquisition
(M&A) activities, we devote the second volume of the book to China’s
outward foreign direct investment and cross-border M&A activities. The
case studies regarding Chinese foreign direct investment, both in Green-
field and acquisition forms, give additional insights into challenging tasks
of due diligence and postmerger cultural integration that foreign inves-
tors face.
Throughout these discussions, we will emphasize on methods, analyt-
ical tools, and concepts that have great applications in M&As. This means
that we would deliberately avoid broad theoretical discussions that do not
have immediate relevance for practical applications, even though know-
ing them might provide significant theoretical insights into all sundry
aspects of merging or acquiring another company or being acquired
by another enterprise. Emphasizing on practical applications does not
imply that theory is insignificant. On the contrary, we greatly value
theory. This approach is based on our belief that business education
should e mphasize on practical relevancy for the conduct of business and
managerial decision making.
Based on this philosophy, we selected those topics because knowledge
of which is imperative in M&A decision making. Naturally, a corporate
executive cannot implement all tasks that are required to develop a strategy
for merger or acquisition. They cannot find a target, conduct due diligence,
xii PREFACE TO THE FIRST EDITION
assess the value the target company, negotiate and structure the deal, and,
finally, satisfactorily meet the most challenging phase of an M&A transac-
tion; that is, to integrate the acquiring and acquired companies. Accom-
plishing those tasks requires many resources and a variety of expertise:
consulting companies, law firms that specialize in M&As, and investment
banks to perform the tasks. However, the decision maker should have an
understanding and a clear overview of all aspects of the processes that a
typical merger or acquisition initiative must go through. This book is writ-
ten as a concise guideline for those readers who are interested in gaining a
clear understanding of what a merger or acquisition entails.
Preface to the Second
Edition
This book consists of three separate, but complementary parts that appear
in two volumes. The first volume deals with general principles, concepts,
and methods that apply to mergers and acquisitions: domestic or global.
The second volume examines China’s global M&A activities of recent
years, the events that are steadily increasing. Inclusion of China’s foreign
direct investment in the book reflects China’s increasing importance as a
leading player in the world economic system. The second volume of the
book also contains a collection of case studies, all about China’s foreign
direct investment in Greenfield or M&A forms.
The new edition of the book has gone through several changes. First,
we have separated all case studies from the analyses in Parts I and II
and have placed them together in Part III (second volume) of the book.
Accordingly, these cases could be read independently of the relevant anal-
yses in the first two parts of the book. Second, to have the length of the
book meet the publisher’s standard, we have presented the topics in two
volumes. Finally, the time series data in the book have been updated and
the developments in China’s global mergers and acquisitions since the
first edition of the book have been added to the book.
Acknowledgments
As was the case in publishing the first edition of the book, encourage-
ment and guidance of Scott Isenberg, the Executive Editor of Business
Expert Press, were instrumental in writing the second edition of the
book in its current two volumes format. We deeply appreciate Scott’s
encouragement in revising the book and thank Scott for his guidance and
recommendations.
Introduction
Reviewing the M&A literature, one comes across a fragmented field
of inquiry. One can recognize different patterns in the development of
the M&A literature according to the disciplines of the researchers. The
research interests in M&A and corporate restructuring literature are
primarily concerned with the following questions. Why do companies
merge? Are M&As successful in achieving the goals of acquisition and
combinations? Why do so many companies fail to create shareholder
value or capture the synergies they inspired to gain? How to best value
the target firm? What role does postmerger integration play in the post-
merger performance of the acquiring and acquired companies? What role
do corporate and societal cultures play in the success or failure of M&As?
The literature on M&A deals with these and many other questions.
The fragmentary nature of the literature emerges from the
discipline-based approach researchers take in answering the questions.
One finds articles with emphasis on economics of M&A (economies of
scale, market power, and shortcut to obtaining costly technology) written
by economists; articles written by strategic management scholars, focusing
on motives for acquisition and postmerger performance according to the
motives of consolidations; and articles written by scholars in corporate
finance, concentrating on postmerger performance based on stock market
indicators. Studies by researchers on organization theory project attention
on postmerger integration and conflicts arising during the integration pro-
cesses and, finally, experts on human resources have focused on effective
communication, cultural differences, and socio-psychological issues that
might have an impact on the success or failure of the combined entities.
Based on this, it is common knowledge among the scholars of M&As that
the discipline-based approach used for answering any of these questions
leads to answers that tend to differ and, in some cases, even contradict each
other (Larsson and Finkelstein 1999).
xviii INTRODUCTION
1
For an overview of 13 chapters in the first volume of the book, please see the introduction
to the first volume.
PART II
Cross-Border M&A
Activities of Chinese
Enterprises
Table 14.2. The table shows the top three recipients of Chinese direct
investment by continents in 2015.
the worldwide average rate (68.7 percent), as well as that of some emerg-
ing countries, such as Brazil (70 percent), South Africa (72 percent),
India (62.8 percent), and Russia (59 percent) during the same time span
(Zhang and Ebbers 2010).
personal, that is, executive hubris and malfeasance. In addition to the listed
motives for domestic M&As, cross-border M&As have another motive.
Many corporate executives consider cross-border M&A as a method of
diversification of risks associated with market volatility and changes in
governmental policies. Risk diversification is believed to increase innova-
tion that is associated with cultural diversity, which promotes globaliza-
tion synergies (Larsson and Finkelstein 1999; Olie 1990).
The goal of M&A transactions is capturing synergies that are to be
found in combining the companies. Specifically, research shows that the
choice of M&A as a mode of entry into international markets is influ-
enced by firm-level, industry-level, and country-level factors. Factors at
the firm level consist of multinational and local experiences, product
diversity, and international strategy. Industry-level variables include com-
petitive capabilities such as technological intensity, advertising intensity,
and sales force intensity. Finally, country-level factors consist of variables
such as market growth in the host country, cultural differences between
the home and host countries, and degree of risk aversion of the acquiring
enterprise (Shimizu et al. 2004).
Recent surveys of Chinese executives, however, identify the specific
motives by Chinese acquirers of foreign enterprises. For example, an event
study by Boateng, Wang, and Yang (2008) using data from 27 C hinese cross-
border M&A deals that took place by the purchase of stocks of target firms
in the Shanghai and Shenzhen stock markets during 2000 to 2004, identifies
the following strategic motives for the transactions that appear in Table 14.7.
Additionally, the findings of a survey of 100 executives from Greater
China5 who had engaged in outbound M&A activities identified the fol-
lowing top five motives for their acquisitions (Deloitte 2013c).