Page 226 - DMGT548_GLOBAL_HRM

Unit 12: HRM in Cross-border Mergers and Acquisitions

Notes
Example: Videocon’s acquisition of Thompson gave it a strong presence in the color
picture tubes market. That will be complemented by the Daewoo’s presence in areas like high-
definition television and digital television.
5. To strengthen the buyers presence.

Example: Tata Tea’s buyout of Tetley gave it a foothold in the UK market. The deal with
Claceau will allow Tetley to enter the US market and gave Claceau a change to tap the UK
market.

6. To reduce the levels of vulnerability.

Example: Tata Steel’s buyout of Corus makes it a global top 5 player and reduces its risk
to fluctuating prices. Rather it could also control the prices now.
7. Chances to be a global company through mergers and acquisitions is the motive for most
of the firms.

Example: ONGC with the acquisitions of the oil-fields in Brazil and Syria is now a
serious contender in the global oil and gas space.
8. Resources are unevenly distributed across firms and the interaction of target and acquiring
firm resources can create value through either overcoming information asymmetry or by
combining scarce resources.
9. Vertical integration occurs when an upstream and downstream firm merges (or one acquires
the other). It internalises an externality problem.

Example: Such an externality is double marginalisation. Double marginalisation occurs
when both the upstream and downstream firms have monopoly power; each firm reduces
output from the competitive level to the monopoly level, creating two deadweight losses. By
merging the vertically integrated firm can collect one deadweight loss by setting the upstream
firm’s output to the competitive level. This increases profits and consumer surplus. A merger
that creates a vertically integrated firm can be profitable.
10. It helps in the reduction of the tax burden as profitable company can buy a loss maker to
use the target’s loss as their advantage by reducing their tax liability.

Example: In the United States and many other countries, rules are in place to limit the
ability of profitable companies to “shop” for loss making companies, limiting the tax motive of
an acquiring company.



Caselet Ranbaxy and Daiichi Merger

aiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy
Laboratories Ltd. from its promoters. Daiichi Sankyo expects to increase its stake
Din Ranbaxy through various means such as preferential allotment, public offer

Contd...

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