Multinational Business Finance ELEVENTH EDITION Chapter 19 Cross-Border Mergers, Acquisitions, and valuation David K. Artirur 1. Michael H. EITEMAN·STONEHILL·MOFFETT Copyright 2007 Pearson Addison-Wesley.All rights reserved
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. Chapter 19 Cross-Border Mergers, Acquisitions, and Valuation
Cross-Border Merger Acquisitions,and Valuation Although there are many pieces to the puzzle of building shareholder value,ultimately it comes down to growth. An increasingly popular route to "going global" in search of new markets,resources,productive advantages,and other elements of competition and profit is through cross-border mergers and acquisitions. Copyright 2007 Pearson Addison-Wesley.All rights reserved. 19-2
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 19-2 Cross-Border Mergers, Acquisitions, and Valuation • Although there are many pieces to the puzzle of building shareholder value, ultimately it comes down to growth. • An increasingly popular route to “going global” in search of new markets, resources, productive advantages, and other elements of competition and profit is through cross-border mergers and acquisitions
Cross-Border Merge Acquisitions,and Valuation . Cross-border mergers,acquisitions,and strategic alliances all face similar challenges: they must value the target enterprise on the basis of its projected performance in its market. An enterprise's potential value is a combination of the intended strategic plan and the expected operational effectiveness to be implemented post-acquisition. Copyright 2007 Pearson Addison-Wesley.All rights reserved. 19-3
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 19-3 Cross-Border Mergers, Acquisitions, and Valuation • Cross-border mergers, acquisitions, and strategic alliances all face similar challenges: they must value the target enterprise on the basis of its projected performance in its market. • An enterprise’s potential value is a combination of the intended strategic plan and the expected operational effectiveness to be implemented post-acquisition
Cross-Border Mergers and Acquisitions The true motivation for cross-border mergers and acquisitions is a traditional one:to build shareholder value. The following exhibit justifies this global expansion as a result of the following: -Publicly traded MNEs live and die,in the eyes of the shareholders,by their share price If the MNE's share price is a combination of the earnings of the firm and the market's opinion of those earnings and the price-to-earnings multiple, management must strive to grow both Copyright 2007 Pearson Addison-Wesley.All rights reserved. 19-4
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 19-4 Cross-Border Mergers and Acquisitions • The true motivation for cross-border mergers and acquisitions is a traditional one: to build shareholder value. • The following exhibit justifies this global expansion as a result of the following: – Publicly traded MNEs live and die, in the eyes of the shareholders, by their share price – If the MNE’s share price is a combination of the earnings of the firm and the market’s opinion of those earnings and the price-to-earnings multiple, management must strive to grow both
Cross-Border Mergers and Acquisitions Management's problem is that it does not directly influence the market's opinion of its earnings Although management's responsibility is to increase the P/E ratio,this is a difficult,indirect,and long- term process of communication and promise fulfillment However,management does control EPS and often must look outward to build value - The global marketplace can offer greater growth potential or "bang for the buck"when compared to struggling within a domestic market for market share and profits Copyright 2007 Pearson Addison-Wesley.All rights reserved. 19-5
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 19-5 Cross-Border Mergers and Acquisitions – Management’s problem is that it does not directly influence the market’s opinion of its earnings – Although management’s responsibility is to increase the P/E ratio, this is a difficult, indirect, and longterm process of communication and promise fulfillment – However, management does control EPS and often must look outward to build value – The global marketplace can offer greater growth potential or “bang for the buck” when compared to struggling within a domestic market for market share and profits