BHP Billiton Making Strategically Important Decisions in Critical Times
Summary of the Case
BHP Billiton is a resource and mining company that is currently in the throes of having gone back on an acquisition deal owing to the slump in the market.
Market condition indicate that BHP Billiton’s decision to back out of the take over of Rio Tinto was a good decision as if it had followed through the company would have to sell some parts of the merged business which might not have been beneficial to the working of the company. After BHP’s decision to pull out of the contract and pay the break up fees rather than settle for the acquisition the shares of Rio Tinto fell by 37% which indicates that the news of the acquisition was buoying up the share price of Rio Tinto and that without BHP’s impending takeover, the company would have been worth much less.
The company had arranged for the necessary financing arrangements but it considered the fact that the investors would be worried in an economic climate where mergers and acquisitions were falling, in fact had fallen by 27% over last year and that the value of cancelled deals was nearing the amount of merger and acquisition deals made.
Moreover, further business deals are likely to be backed out of as BHP realizes the fallacy of investing in a private-equity firm where costs can increase and which wont be affordable in the near term.
Statement of the Problem
The problem with the situation lies in the fact that the business clime is not suitable for an acquisition even though a private-equity firm such as Rio Tinto might be in favor of such a deal.
The climate indicates that even though the acquisition might be at a good price, selling of parts of the business to comply with anti-trust issues might pose a problem as there might not be enough buyers for the business.
Proposing a Solution
The best solution in this case is to either delay or cancel the acquisition arrangements as even though there are positive speculations for the merger and acquisition business to pick up, the near future might be in the doldrums if such a deal is followed through with.
Learning Applications
In the case of BHP, there are several lessons in strategic business management that can be learnt. Firstly, even though the company made a good decision to back out of its deal, it would have avoided the transaction and the paying of break up fees altogether if the management had taken the economic climate and its implications into account in the first place. Although the deal didn’t follow through, the company could have avoided bad press and would have saved on costs at the same time.
Secondly, even though mergers and acquisitions become easier in times of recession when private firms are more open to such deals, the company itself should take into consideration how its operations, its stakeholders and its financial position will be effected, which was done in this case to the detriment of the deal.
Last, but not the least, the company took into account the fact that even though it had a suitable financing arrangement in the short term it would greatly hamper its operations in the long run if the recessionary period continued and therefore, this is a lesson that every business must learn that short term gains or short term success should be evaluated in a great measure to see that it does not negatively impact the future of the company.
Due Diligence: A Case For Hutch-Essar In Managing Takeover Bids
Summary of the Case
Hutch-Essar is a wireless telecommunications company based in India which was formed after the acquisition of Hutch and Essar. Hutch has a 67 percent stake in the company whereas; Essar is a 33% stakeholder. Currently the company’s stake is up for sale and there are many contenders for this stake sale. Among these are Vodafone, which is in the phase of carrying out a Due Dillgence check in the company. Other companies contending for a stake in the company include RCom, Reliance, Hinduja Group and Maxis along with Essar itself.
Hinduja is the latest to join the bandwagon as it declared its interest in the company recently.
Statement of the Problem
The problem with the deal here is that there is controversy regarding Essar’s right of refusal. This right allows Essar to refuse a stake sell out to companies that it does not consider appropriate for the merger or acquisition. The controversy does not end here. There is more debate on the fact that whether the right to refusal for Essar is only restricted to Indian buyers or if it also exists in case of domestic as well as international buyers.
Moreover another problem that is highlighted here is that Essar itself is interested in the buyout and if such a condition of right of refusal exists, it could complicate matters further.
Another problem that comes to light here is the fact that there are reports that a company which was in the running for the stake sale was not allowed access to the books of the company which in fact is a negative action as the company will not be able to get the best possible valuation if all contenders are not allowed their evaluations.
Proposing a Solution
The solution here revolves around a simple notion. Foremost, the company’s management should put an end to the market speculations and instead focus on spreading the correct story in the market as this will not only affect the stock valuations but will also be able to fetch the company a better price.
Secondly the issue of the right if refusal should be solved within the company and the issue be dealt with in light of the legalities involved. However it would be best to keep matter out of the court as not only would it bring bad publicity but also put the company and the deal in precarious situation delaying the process rather than expediting or helping matters in anyway.
Further the company should grant access to all contenders so that a quality valuation comes into light and the company can take advantage of the best deal.
Learning Applications
The learning points here are that a business in face of several controversies best deals with the situation when it lets investors know its standpoint and where there is transparency in the processes in issues involved. In case of Hutch Essar, speculators and stakeholders are not sure what the rules of the game are and of a court in involved in solving matters a lot of time, effort and money is wasted in arguing over finer points that should have been made known in the first place.
International Mergers and Acquisitions: BA and Qantas Fail to Negotiate a Global Merger
Summary of the Case
British Airlines and Qantas were negotiating a merger deal between the two airlines. British Airways is Britain’s national flag carrier where Qantas in an Australian airline. The merger talks failed, however to reach a deal as Australian law forbid foreign ownership of airlines and dictate that at least 51 percent of the airlines should be Australian owned while this condition is not acceptable to the Britons.
Furthermore, British airways has come under some trouble due to its pension pays and as economic turmoil deepens it finds itself defenseless against rising fuel and oil prices which it needs to hedge against via such mergers.
Even though the talks between BA and Qantas have not worked out both airlines are looking to other potential, global partnerships in order to have a stringer company to face the recessionary period and to survive in the game where only the fittest and the largest can survive.
Statement of the Problem
The problem indicated in the case is that the airlines both need to have a merger or an acquisition with another airline in place in order o grow stronger, face more economies of scale and exert more power over suppliers of oil in order to reduce overall costs. However in global transactions and contracts the government of the country has a lot of stake in a company especially one as vital as one in the airlines industry. Therefore the regulations can be a hindrance in such business negotiations where mutual agreement, understanding and clarity of the contract terms on both sides is a must. What happened in this case was a classic case of the aforementioned problem in international business, the government laws did not condone such a merger.
Proposing a Solution
The solution to this problem can be the BA agrees to the terms of Qantas Airlines as if it needs to work efficiently in Australia it can gain an added advantage by being the airlines partner as even if it tries to merge with another Australian airline for the Australia route, BA will face the same problem. Moreover BA needs to solve its pension liabilities issue before going into further talks with any other potential partner because the problem leave BA with a negotiable position. Another solution to the problem, as already mentioned in the case is that BA look for other global partners with the point of view that the new acquisition or merger doe not over burden its current resources and capabilities as international management of employees will also be a tough management issue.
Learning Applications
The learning application of this case is that companies should look into having partners in countries that have compatible laws or it should lobby its case first in the government in order to rid of any unwanted government regulations that might be detrimental to its operations. Moreover in case of international mergers it is not merely the companies themselves but the countries’ governments that too are at stake and it bodes well for a company to take any regulations that the country has into account before embarking into negotiations with any company. Even in this case the talks and then the refusal could have been avoided if BA was already aware of this clause and would have taken this into account before making the decision to choose Qantas and waste effort, time and money in talks that could have entirely been avoided.
Merger and Acquisition Failure: Main Factors behind M&A setbacks
Summary of the Case
The case highlights three important variables that lie behind many failures f M&A negotiations.
The three factors that are the major cause of these issues are dishonesty, reliance on owners and failure for systems to integrate.
With regards to dishonesty, many M&A Agreements fail when small businesses that are to be merged with larger ones are dishonest in reporting their revenues and costs. In such a case, bug companies that have proper standards and regulations for all processes feel uncomfortable dealing with businesses that have a dishonest accounting record or lie in reporting revenues to the federal agency leading t tax evasion issues that big companies want to avoid at all costs. Not only does dishonesty lead to lack of goodwill, it also creates problems for the business when the deal doesn’t work out.
The second factor is the reliance of small businesses on their owners in all walks of its operations. This is mainly because of poor succession planning by entrepreneurs who like to control all aspects of their business themselves. Thus companies that are interested in buying such ventures give it a lower evaluation as successors and employees have to be trained and re-trained in order to comply with big company’s rules and regulations and in order for delegation to be more effective.
The last factor depends heavily on the fact that many times businesses do not pre plan the deal and are ambiguous about operational issues that can have a huge bearing on the combined company’s future. This in turn leads to an integration failure where either there is too much change involved on both sides so that the core focus is lost or there is a failure for the merged companies to connect at levels that are necessary for operational success.
Statement of the Problem
The problems that lead to a break down of talks between a small and a large business trying to acquire the smaller one are dishonesty, failure of succession planning and delegation of work as well as a failure of systems integration.
Proposing a Solution
The solution lies in the problems themselves as the remedy involves more transparency in accounting and reporting financial position, avoidance of tax evasion, due diligence and through preplanning and assessment of the environment along with factors that can have a bearing on the future of the two firms and the M&A deals as well as succession planning and more delegation of work to capable people who can then act as leaders to take the business forward viably.
Learning Applications
The applications of this case are apparent where small entrepreneurs as well as larger firms need to study the factors proposed as variables that play a big role in the failure of M&A agreements.
All impending M&A deals should be made with these factors in mind.
Outbid Versus Long Term Partnership: Hyundai Wins Against Ford In Gaining KIA
Summary of the Case
KIA has been a household name in automobiles in South Asia for a very long time but it has be in the last couple of decades that it has gained a foothold in Western Markets. The company entered into a partnership with Ford Motors in the late 80’and built vehicle based on Mazda models for domestic and international sale. Though the cars had different names in different markets they were essentially produced by KIA in the same manner and marketed by Ford in the Western countries and by KIA in South Korea. It was in the early 90’s that KIA began exporting and selling vehicles under its own brand name in America and gained a strong foothold in the American market due to some of its car models.
It expanded in America after establishing itself thoroughly in the state of Oregon and then gradually spreading to the rest of the states. With regards to Europe the company began selling vehicle in the region in the late 1990’s and gained a sizeable market share there with manufacturing focused in Germany.
However in the year 1997, when Asia was hit by a financial crisis the company had to declare bankruptcy and was then acquired by its rival company Hyundai. This was considered to be a surprising gesture as Ford had been the company’s partner for the longest period of time.
Statement of the Problem
The problem here is that despite of Ford being a long term partner for KIA, it was overlooked as the acquiring company as Hyundai acquired KIA to reap the benefits of a strongly established brand in the western world. This was because Hyundai was able to outbid Ford as the buyer of the company. This indicates that long term relationships hold little value when a acquiring company can outbid he long term partner by valuing the company bought higher than its contender in stake buying.
Proposing a Solution
The solution here is very difficult to practice in real life as it is impossible to know unless there is dishonesty involved about the bid price of a company. Therefore companies have to rely on their experts to evaluate the company not only along the lines of its current worth but also along the lines of its potential benefits. Hyundai apparently weighted the future potential of the company higher and being an Asian brand Hyundai would probably have seen the advantage in investing in a brand that was well established in the western world.
Learning Applications
Businesses hence should learn that having a long term relationship with a company does not give it the right to demand preferential treatment. Rather the relationship should be taken as an opportunity to be able to realize the potential of a partner company and to outbid other contenders if the company seems to be able to give benefits back in return.
Hence business should learn that managing an M&A is not simply about the price but it is also about a through evaluation of the operating environment as well as the internal and external factors that may or may not be under the firm’s control but can be hedged against or avoided, whatever the case may be.
References
BHP Billiton. BHP Billiton. 2009. Web.
British Aiways. British Aiways. 2009. Web.
KIA Motors. KIA Motors. 2009. Web.
Qantas. Qantas Homepage. 2009. Web.
Vodafone India. Vodafone India. 2009. Web.