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International Financial
Group Work
王启乐 09301005
林绮晴 09306028
吴小旋 09306010
1. Find the stories of companies that have done a good job of implementing critical
successful factors necessary to implement a M&A activities. And re-edit as a
CASE-STUDY format.
In 28th September 2008, ZOOMLION signed an acquisition delivery agreement with
CIFA, and they finally completed the M&A.
Backgrounds for this M&A
CIFA was an Italian engineering machinery manufacturer, founded in 1928 and
headquartered in Italy. It had seven domestic factories in Italy, two sales/service
centers in the United States and Mexico. CIFA had a good reputation in the industry
by its producing concrete batching plant, concrete pump, concrete mixer truck,
concrete cloth machine, stabilized soil mixing equipment, concrete jet car and
concrete construction formwork, etc.
CIFA is one of the big three of concrete machinery manufacturers and big two of
concrete pump, concrete pump truck manufacturers in Europe and the United States.
Its core competitiveness is its performance-price, it has a 10% - 20% price advantage
relative to the global industry. Relative to the Asian concrete machinery
manufacturers, it has technical advantage and brand value advantage.
In 2006, CIFA acquisitioned by private equity investment fund Magenta. In October
2007, Magenta and CIFA’s two holding families decided to sell the shares as its
asset-liability ratio is up to 83%, earnings per share are bad.
Zoomlion co., LTD., (hereinafter referred to "zoomlion") founded in 1992, is the
leader of Chinese construction machinery equipment manufacturing enterprise.
Zoomlion mainly engaged in high-tech equipment’s R&D and manufacturing of
required construction engineering, energy engineering, environmental engineering,
traffic engineering, and other key state infrastructure construction engineering.
ZhanChunXin, chairman of zoomlion, said that he doesn’t want to compete among
the home country, but he wants to compete with international competitors and be the
leader enterprise in the world. So zoomlion is always on its way to become
international and professional. In 2001, zoomlion acquired English the way the
company 80% equity by $1.96 million. This was the first successful case for domestic
enterprises merger and acquisition with international well-known enterprise after
China joining WTO. This acquisition helped zoomlion to make expansion in Europe
from technology, capital and market aspects. It was also the milestone for zoomlion’s
internationalization strategy. At the same time, this march in trenchless construction
fields results in a promotion in technical level for at least twenty years in advance. On
August 30, 2003, the largest mergers and acquisitions agreement of Chinese
construction machinery industry signed in Changsha. Form that on, PuYuan
engineering machinery co., LTD incorporated into zoomlion as a wholly owned
subsidiary. This gave zoomlion the national leading position in hoisting machinery
field. In the meanwhile, the enterprise became a relative state-owned, equity
diversified listed company, thus completed the transformation form research institutes
to internationalization enterprise. On March 25, 2008, zoomlion purchased 100%
shanxi New HuangGong machinery co., LTD. with RMB 34 million. With the aid of
New HuangGong company acquisitions, zoomlion successfully went into the field of
mechanical field conditions, realized the diversification of the products and the
horizontal extension of industrial chain.
Details for this M&A
On one hand, zoomlion wants to accomplish its internationalization strategy with the
help of CIFA’s advanced technology and channel of distribution. On the other hand,
CIFA wants to solve its financial problems, even carry forward its business. Under
this condition, the M&A between zoomlion and CIFA comes.
Zoomlion brings in some selected Common investors. They are Hony Capital,
Mandarin Capital Partners, Goldman Sachs Group Inc. All these investors are
professional, but they have different advantages. Hony Capital focuses on domestic
professional investment companies, and mainly invested in mature enterprises of
mature industries or emerging industries. It also pays close attentions to those
state-owned enterprises for mergers and acquisitions and private enterprises with
rapid growth. Mandarin Capital Partners is now the largest sino-italian private equity
fund. It has raised 328 million euro. Its mission is to improve the process of
globalization of Chinese companies and help them to get distribution channels, global
brand, as well as professional technical efforts in Europe. Goldman Sachs Group Inc
has rich region market knowledge and operation ability. Along with the development
of global economy, the company also continuously develops to help customers
quickly discover and seize the investment opportunities around the world.
After the merger, zoomlion, with CIFA, builds the development platform, taps
strategic market, firmly keeps a foothold in the concrete machinery field. Of course,
zoomlion realizes the profit growth.
With 3 years’ integration, zoomlion and CIFA are in good system. Zoomlion formally
becomes the biggest enterprise of concrete equipment manufacturers in the world.
2. Read the case that you have edited, and hand in your views and analysis on four
questions as follows: (base on your understanding of FINANCIAL MANAGEMENT,
1) State the critical successful factors that are the focus of the successful M&A
First of all, according to the "law of seven-seven", 70% of the M&A have failed to
realize their expected commercial value and 70% of those failures result from the
cultural integration after M&A.
As the time of Cross-border M&A, cultural differences will be the biggest barrier. In
order to solve this problem, Zoomlion is particularly careful when choosing the joint
investors. Hony Capital, a Chinese local fund, possesses an international view.
Goldman Sachs is an investment agency with plenty of experience of global
investment management, and Mandarin Capital Partners’ management team is an
Italian team relatively familiar with China's national conditions. In the earlier stage of
integration, this combination can effectively buffer the conflict of culture and
concepts. It constituted a valid "cultural buffer zone", so that the direct collision
during integrating different enterprise cultures can be reduced, and the smooth
progress of consolidation guaranteed. After purchasing, the attention to the cultural
integration also played an important role for the acquisition of propulsion.
Another critical successful factor for M&A is the structure design, since they must
consider the convenience of putting investment funds into Europe and getting
dividend return, making the most reasonable and efficient tax arrangement based on
the international tax rules. Issuing debt, borrowing or direct CIFA shares holding will
be proceeded through a company B with a special purpose established in Hong Kong.
Besides Hony Capital, Goldman Sachs and Mandarin Capital Partners, the
wholly-owned subsidiary A found in Hong Kong of Vanda Hong Kong co. LTD which
is the Zoomlion’s subsidiary companies in China holding 60% of its shares. This
purchasing framework enables the company to reduce cost this way in the future.
What’s more, the reasonable strategic objectives are also critical to the success of
ZOOMLION. Zhan Chunxin, the chairman of the board, once set a strategic objective
that the company would become the NO.1 in Chinese machinery industry and enter
the world’s top ten in five to ten years. In order to achieve this goal, obviously,
epitaxial expansion such as is essential. They should actively make M&A event,
enrich product category from components and parts to financing leasing industry.
To achieve its long-term goal, Zoomlion "have to" conduct through "fission" and
whether this "fission" go smoothly is related to the company’s fate. Therefore, serial
acquisition will bring both benefit and risk to Zoomlion. Those serial deals and
multinational acquisition CIFA are seemingly absurd, however, in fact, they have been
carefully designed by Zoomlion. Each of them is to improve Zoomlion’s product
category and market structure, and eventually to realize globalization.
Purchasing PowerMole is for getting trenchless technology, PuYuan crane lead core
technology, Shaanxi New HuangGong developing mechanical field conditions and
CIFA the first position in global concrete field. Concentric diversification makes a
increasingly strong presence of Zoomlion’s core competitiveness in mechanical
manufacturing; from single to multiple makes its leading position more and more
There is no denying that Zoomlion is far-sighted in brand strategy planning.
Preceding domestic rivals, they build a fairly stable and complementary brand
strategy through a series of merger, acquisition and restructuring.
The power of their committing to globalization also cannot be denied. Purchasing the
world’s third and becoming the world's first fundamentally change the structure of
domestic competition, and make a good start in internationalization.
The philosophy of Zoomlion is: never spend time in self-replicating at low starting
point or relying on the simple accumulation to complete scale expansion, but use
capital, an eternal golden link, to achieve your ambitions.
In general, the enormous achievement Zoomlion has made in decade is based on
capital use and strategic deployment.
2) List the summary of lessons learned which made the factors successful.
So far, all of the above listed are critical successful factors in acquisition case of
Zoomlion and CIFA. Under the background of economic globalization, there are other
factors which will affect the M&A activities success.The success of the M&A
depends on whether the integration of two companies is efficient to enhance the core
competitiveness of enterprises.
(1). Ability of Strategic integration.
The strategy integration in the process of merger and acquisition is to integrate the
preponderant strategies of two enterprises in order to improve the profitability and
core competitiveness of the enterprise.Strategic integration is not only to get new core
ability, but also to solve problem of new ability and the original one getting together.
(2). Ability of Organization and system integration.
The target of organization and system integration is to form a unified organization
structure and management system after M&A, in order to realize the stabilize the
operation as soon as possible. The applying of integrated management system should
hep to realize the establishment of the scientific management standardization,
planning, decision-making and balances system to help enterprises to achieve
expected goals. Only if the enterprise improve its management, it can achieve good
results after the M&A activity.
(3). Ability of human resource integration.
Human resource is the important resource of an enterprise so the integration of human
resource is a critical factor which determines the success of M&A.
Enterprises should develop the stability of its own policy to maintain important talents,
ensure smooth internal communication, and cultivate the employee commitment
through the time of M&A integration as soon as possible.
(4). Ability of culture integration.
The most difficult factor after the M&A is the cultural integration. According to the
statistics, in the past two years, 65% of the global merger and acquisition enterprise
ended in failure, of which 85% CEO admitted that management style and corporate
culture difference are the main reasons for the failure.
The reason why cultural integration becomes the the most difficult task of M&A
integration is that the enterprise culture is deeply rooted in the history of the
organization which affects value orientation and behaviors of employees. The
integration of enterprise cultural is essentially the change of human thought and
behaviors, which can hardly be solved by any rules and regulations.
3) What is the company should do next to improve its post- M&A initiatives.
(1) Strategy integration. Zoomlion’s strategy is focusing on development and
improvement in engineering machinery field and aim to becoming an international
enterprise group. CIFA company vision is competing business in engineering
machinery sector with Piao time meister companies which is the leader of this field in
euro. So, we can see that strategies of zoomlion and CIFA are basically consistent. It
is not that difficult to do the strategy integration.
(2) Cultural integration. As the differences in language and culture between Italy and
China are so large that, zoomlion should adopt a series of measures to meet the
cultural integraation, such as suggesting Chinese staff to adjust to Italian business
habits and do negotiations directly. Also, both zoomlion and CIFA should encourage
their personnel to learn the new language, culture, communication system, etc. In this
way, staff can establish a good working relationship and cooperate with each other
(3)keep CIFA’s independence. Zoomlion should basically keep CIFA ’s independence,
especially in the human resource part. Zoomlion can transfer the original CIFA CEO
to zoomlion headquarters to be a vice President of strategic planning and development
(4) Establish a coordinative office. Zoomlion can set up a "collaborative office" to
carry out cooperative mechanism. Market group, technology group, the production
group, procurement group and comprehensive management group are involved. In
every aspect of integration, both zoomlion and CIFA should give their advices. Only
in this way, interface can be done.
These steps, on one hand, can help to realize the Chinese producing of CIFA products,
improve CIFA products’ performance-price in China; On the other hand, can help to
transfer home-made parts to CIFA global supply chain system and rapidly improve the
customer value. Moreover these steps can optimize CIFA global supply chain system,
reduce its global sourcing and operation cost, improve its global competition ability,
and finally realize the transfer of CIFA advanced technology to China and get the
initiatives from the M&A case.
4) It is reported that Chinese government has imposed some restrictions on foreign
companies’ involvement in M&A activities, please provide your analysis to the
rationale behind the government policy mentioned above.
For example, September 3 in 2008, it was announced that Coca Cola had quoted 17.9
billion HK dollars to purchase Huiyuan company in China. After one years later, this
activity was rejected by the Ministry of Commerce, applying the related clauses of
Anti-Trust Law in China. Although it aroused many arguments among countries, there
is rationality for Chinese government to implement such policies.
In international mergers and acquisitions, the government is always responsible for
the maintenance of the interests of the state. According to UNCTAD, one of the
reason why the MNCs prefer international merger and acquisition is to obtain host
country’s strategic assets, such as trademark, franchising, patents, local technology
and distribution channels and they are also able to bypass some trading barriers,
which can quickly occupy the local market in the international market full of fierce
competitions. As the M&A activities refer to the interests of the state, the government
always interfere with them at varying degrees. Not only China, even the United States
where the restrictions of foreign investments are few, make some limitations on some
M&A activities especially in industries of communications, transportation, real estate,
natural resources, energy, banks, insurance and so on. It is understandable of China to
set restrictions on international M&A activities especially the Coca-Cola and Huiyuan
case mentioned above. There are four reasons that behind the prohibition of the
acquisition and other similar situations.
First of all, it’s the very way to control the foreign company occupying the Chinese
market. In the Coca-Cola and Huiyuan case, as we all know, the Coca-Cola company
is to some extent a monopoly enterprise of soft drinks in the world. If the M&A
activity carries out, Coca Cola has the ability to conduct the monopoly place of soft
drink industry to the juice industry, which may cause that few other companies being
able to enter this industry. Huiyuan has occupied 46% market share of juice in China
and Coca-Cola had 25.3% market share. If those two companies joint together, there
may be 70% market share occupied by the M&A activity. That is to say, the
competitions in juice industry will be restrained, leading to the severe operating
condition of the medium-sized and small enterprises of China. Chinese government
hope to stabilize the market share of domestic companies. In addition, if the other
companies can hardly enter this industry any more, the employment of China may
decrease to some extent.
Secondly, the M&A activity may negatively affect the profits of orchardists, who are
in the upstream of the supply chain. As many factors of the fruits growth including
life cycles and farming seasons, it is the seller market, channels and processors who
have the decisive influence. It is likely that upstream supplies abuse the dominant
position in the market after foreign company dominant the industry, which had
happened in the soybean market in China.
Thirdly, the M&A activity involves large amount of capital transferring between
related countries. Huiyuan is a large state-owned enterprise of China. Chinese
government interfering the economic activity is also partly because that if Coca-cola
acquires Huiyuan company, China will transfer a large amount of capital to foreign
countries, while huge amount of dollars may flow into Chinese market, which will
make the financial market unstable.
Fourthly, technology factor is also a worry of Chinese government to take the action
on such M&A activities. Technology innovation is a big concern of China in
whichever industries, with which the competitiveness of Chinese products can
increase. The company of developed country acquiring Chinese company may bring
new technology of western countries to some extent. Yet, if the big company like
Coca-Cola seize the leading position in the drink industry, there is little space for
Chinese-domestic companies to live any longer, not to speak of developing the new
technology of their own in this industry. The M&A activity may have more negative
impact than positive impact on the industry technology development.
All in all, M&A activities between China and oversea countries may have large
impact on Chinese employment, economic growth, industry structure, technology and
other aspects, which are the important factors of macro-economic. In order to achieve
those goals, it is necessary for Chinese government to make restrictions on the foreign
companies’ involvement in M&A activities, in case that the negative effects occur.
5)Under the current International Financial Crisis, what are the advantages and
disadvantages for the proposed M&A activities? Please explain.
Since 2008, the international financial crisis has been more and more severe. Foe the
reasons of maintaining the resource supply to the economic growth, transforming the
mode of economic growth and dealing with the industry competitions in the varying
situation, many enterprises in different countries have launched international mergers
and acquisitions, which are the important methods of realizing the fast growth and
global operations for the enterprises, and also the strategic method to obtain the
resources such as technologies and market. Some countries like China keep the
continuous economic growth and domestic demand, which provides a good
environment for M&A activities. Also, the global financial crisis creates some
opportunities of overseas mergers and acquisitions for enterprises.
The advantages of M&A activities especially for parent enterprises are as follows:
Firstly, obtaining the resources from others. The M&A activities for accessing
resources are influenced obviously by the economic situation.By the influence of the
worse global economic situation, the International Monetary Fund continuously turn
down the expectations of 2009 world economic growth. However, some countries
which are little affected by the crisis can still expect maintaining fast economic
growth. Under the circumstance, those countries are still faced with huge energy
supply gap in production areas and the consumption fields. Little economic growth of
the countries of Europe and the United States, which are the major energy consumers,
may lead to some development stagnation of the enterprises of energy production and
processing. At this time, it provides a good chance to take actions of M&A activities.
For example, 2009, China Oilfield Services Co. LTD. Purchased Norwegian Offshore
Drilling Company ASA equity, which referred to 2.5 billion dollars.
Secondly, obtaining the technologies from others. Compared with the multinational
companies of the developed countries, most of the enterprises in developing countries
are still at the stage of chasing after the leading technologies. Since the latter half of
2008, some leading enterprises of advanced technology in Europe and the United
States are faced with financial distress. In these developed countries, the financial
crisis is moving to deeper economic crisis. The reason is that the real economy and
financial system have close interdependence, and once the financial system collapses,
operation chain is easy to be broken, the entity enterprise may be cut off, which
provides the developing countries with the opportunity of entering the countries with
leading technologies to access and learn from their technology. Under the
circumstances, some IT high-tech enterprises, and equipment manufacturing
enterprises can beneficial the most from M&A activities.
Thirdly, capturing the international market share. International M&A activities are the
important methods for the enterprises to enter the overseas market quickly. Faced with
the international financial crisis, it is the perfect way for some enterprises of
developing countries to make the acquisition of mature enterprises with mature sales
channels to capture the foreign market share. In our group case, Zoomlion acquired
CIFA which is one of the biggest concrete machinery manufactures in the world in
September 2008. After the completion of the acquisition, Zoomlion has become the
leading enterprise of the world concrete machinery industry. CIFA originally had big
market share in Europe, the United States, central Asia, the Middle East, Russia and
other areas and had the establishment of a sales and service network. Through
transaction, the company can not only enter the eastern Europe, Russia, India in a
short time which are the places with the potential development, it can also save the
high cost of opening European market and accumulate funds to develop other markets.
In addition, through the brand interaction, it can improve the position of Zhonglian
brand in the international market rapidly.
The advantages of M&A activities especially for the enterprises merged by other
companies of other countries are obvious in the international financial crisis.
The financial crisis negatively affected the entity economy. Many companies are
faced with the problem of capital shortage. Along with the decreased demand of the
consumers, they are likely to take the action of cutting down the market share, which
lead to the reduction of production process and accordingly the unemployment of the
whole society increases. The international M&A activities properly solve all the
problems. The parent countries will bring a large amount of currencies into where the
subsidiaries are located, to some extent deal with the shortage of capital. And the
original company can still keep operation in the severe economic environment, which
may maintain the employment, stabilizing the business as well as the living condition
of employees. In general, being merged by the companies from other countries may
stimulate the economy of the host country.
Although international financial crisis creates many opportunities for MNCs take
M&A activities, the crisis covers a large scale in the world and may last for a long
time, there may also be disadvantage when M&A occur. M&A is a huge systematic
project. According to the international experience, 70% of international M&A didn’t
receive the desired effect. Some enterprises cannot get rid of the shadow from the
failure of overseas mergers and acquisitions.There are many risks in M&A activities
especially in the international financial crisis, which may considered as the
First of all, the financial risk. Financial factors include inflation, interest rates, GNP
growth and labor costs. These factors can affect the cost of production and revenues to
the subsidiary. In the particular time of financial crisis, the inflation, interest rates and
currencies’ exchange rate are all unstable, which causes the volatility of the cash
flows and capital values of companies. One of the disadvantages of the M&A activity
is to bear more unstable financial factors than in other normal times.
Secondly, the agency problems. The agency problem reflects a conflict of interests
between decision-making managers and the owners of the MNC and agency costs
occur in an effort to assure that managers act in the best interest of the owners, which
are normally larger for MNCs than purely domestic firms, because MNCs incur larger
agency costs in monitoring managers of distant foreign subsidiaries. In addition,
foreign subsidiary managers raised in different cultures may not follow uniform goals,
especially when the economic condition is not the same as before.
Thirdly, the country risk. Forms of country risk include the possibility of blocked
funds, changing tax laws, public revolt against the firm, war and a changing attitude
of the host government toward the MNC. The countries faced with the financial crisis
severely is likely to take more open policies to welcome some MNCs stimulating their
economy. Although it is a long-term situation, the economy life cycle reflects the
ultimate recover of economy, which may change the attitude of the host government
toward MNCs at that time. MNCs should make analysis carefully in case that the tax
laws and restrictions is carried out in host countries. In addition, the war risk is an
inevitable factor to MNCs that they should always bear.
In a short, in the international financial crisis, when carrying out the M&A activities,
the companies should not only grasp the opportunities, but also analyze calmly and
properly avoid risks.