International Financial Management For Cross Border

Common Elements in Cross Border Mergers and Acquisitions

Discuss about the International Financial Management for Cross Border.

Overseas acquisitions by promising market based corporations, from nations such as India are increasingly gaining prominence in the arena of global deals of cross border mergers. However, attaining success in such kind of deals can be considered to be a mixed bag and is essentially a combination of excellent management together with lucky breaks, namely desirable external environment (Titman et al., 2017).

The process of acquirement of a business concern is said to have three common components, namely:

– Identification as well as valuation of the target

– Completion of the process of transaction of ownership change

-Management of post acquisition process

Identification: The process of identification of particularly target market paves the way to identification of the target business enterprise. Entering a very highly developed market delivers the widest choice of various publicly traded corporations with comparatively well-defined markets along with publicly divulged financial as well as operational data (Deresky, 2017). The development of particularly privatisation programs in diverse emerging markets during the latter half of the period 1990s delivered several new targets for undertaking cross border merger.

Valuation: After completion of the process of identification, procedures of valuation of target start. There are different techniques of valuation that are widely utilized in the arena of global business, each with comparative merits and demerits (Brooke, 2016). Apart from the elementary methodologies of discounted flow of cash as well as multiples, there are varieties of industry specific dimensions that concentrate on the most important components value in diverse lines of business.

Settlement of transactions: After identification of target and completion of the valuation, the procedure of settlement of the business transaction can be considered to be a very intricate and at the same time consuming process. There are acquisition processes that flow smoothly and can be considered to be friendly process, while some acquisitions are not completely supported by the entire management of Target Corporation and it is regarded as hostile takeover. Also, regulatory approvals are also necessary particularly from the management, ownership along with various regulatory bodies (Finkler et al., 2016). Thereafter, compensation settlement is also carried out in this stage. This refers to the last act of the cross border merger that involves disbursements to shareholders of necessarily the target business enterprise.

Post acquisition management: Post acquisition managing is the phase in which the motivations for undertaking business transaction need to be realized. Effective management is essential as there are synergies stemming from the business combination, or introduction of capital at a cost and accessibility formerly out of the reach of target of acquisition (Cavusgil et al.,  2014).

Cross Border Merger – Tata Motors’ Acquisition of Jaguar and Land Rover

Cross border merger with reference to the present case

Tata Motors, a leading Indian motor manufacturer acquired the firm Jaguar and Land Rover (JLR) from Ford Motor Co. at a cost of USD 2.3 billion during the year 2007. The deal comprised of purchase of manufacturing plants of JLR, two very advanced design centres located in UK, national sales corporations across the world in addition to licenses of various intellectual property rights (Shapiro & Moles, 2014).

Management of TATA Motors intended to enter into the market segment of luxury cars as well as Premium Sports Utility Vehicle (SUV) in order to complete the product portfolio of the company, which hitherto was restricted to the commercial motor vehicles, low end passenger cars and comparatively low-priced utility motor vehicle. Also, management of the company TATA Motors hoped to gain benefit from JLR’s product pipeline, superior manufacturing expertise, formulate capabilities and a loyal worldwide network of dealership (Wild et al., 2014). However, the deal appeared to be a mistake. The worldwide financial crisis adversely affected sales of different luxury vehicles throughout the world, while JLR was haemorrhaging cash.

Processes followed for settlement are as mentioned below: 

Highlights of post merger impacts

Various initiatives for rationalisation of cost were undertaken for improvement of cash. These initiatives are hereby mentioned below:

– Establishment of single shifts as well as down time for 3 UK based assembly plants (Hodge, 2018). 

-Extension of supplier payment terms from 45 days to 60 days

-Receivables decreased by £ 133 million from particularly 38 days to around 27 days. 

-Decrease in inventory by approximately £217 million between the period June 2008 and March 2009.

-Labour actions included voluntary retirement to approximately 600 employees, reduction of agency staff, supplementary job cuts to around 300 managers and contract with Unions to institute pay freeze and longer hours of working (Zietlow et al., 2018).

Analysis of impact of merger on financial health

Comparative analysis of movements of share price of the company TATA Motors during the period 2008 and 2010 shows the effect of merger on the financial health of the company (Barr, 2018). The graphs presented below shows the share price movements of the firm during the year 2008 and 2010.

Evaluation of movements of the share price shows that cross border merger carried out between TATA Motors and JLR, the share prices of the company decreased. In addition to this, it can also be observed that the rights issue of the company also failed. The other potential problems of the cross border merger include decrease in sales of the company by approximately 35% (Brigham et al., 2016). 

Post Merger Impact and Financial Health Analysis

The company TATA Motors intended to have a global influence. Management of the firm was of the view that buying these brands at a low rate now can help in acquiring better value later. Again, this merger also eased the process of entry of TATA Motors in the European market. Also, dependence of the company also reduced to a large extent on the Indian automobile market and this accounted for nearly 90% of the company’s sales. Furthermore, sales in different emerging markets also increased with decreased dependence on different matured markets. The company essentially gained the opportunity of spreading the business across diverse segments of the market (Cheng et al., 2014). The new price range starting from 63 lakh to 90 lakh also helped in placing the company TATA in the correct place to compete with the market leaders namely Mercedes, BMW and many others.

SWOT analysis can help in understanding the impact of the cross border merger 

In conclusion, it can be said that the merger appeared to be poorly timed as demand for premium cars collapsed owing to the financial crisis. However, the company started to generate profits in the FY 2010 up to approximately 41% and now can be regarded as a good example of cross border merger.

Way TATA Motors serves management goal of improving quality of life of communities

As per the sustainability report published, Tata Motors is essentially committed to developing social capital by means of improvement of overall quality of life of individuals in the society that the business operates in. The vision of the company Tata Motors vision for attainment of sustainability can be said to be closely tied with the company’s commitment to build natural capital by means of diverse various initiatives (Greve & Man Zhang, 2017).

The identified initiatives is said to be within the facilities as well as within the societies for shielding the overall environment. With growing emphasis on causes along with effects of change in climate and the requirement to decrease carbon emissions, Tata Motors is working deliberately to lessen its carbon footprint. Also, vehicular emissions present a large fraction of carbon footprint. Approximately, 70% of carbon footprint is mainly owing to vehicular emissions (Mukherjee, 2016). Therefore there is a focus from the firm on diverse initiatives to alleviate and lessen emissions of CO2. In essence, the Company is functioning on formulation, designing and development of different environmentally friendly vehicles (also referred to as EFVs) (Brueller et al., 2016). In addition to this, Tata Motors is also launching a programme known as Hybrid city bus along with a range of different electric vehicles founded on Indica Vista hatchback as well as mini-truck Ace. Also, the business enterprise is also committed to switch over to particularly Bharat Stage IV regulations effective in India on and from 1st April of the year 2010. During the same period of time, that is aftermath the cross border merger with JLR, the business enterprise engaged in the process of constantly analysing diverse technologies that resulted in lower emissions of CO2. It can be hereby said that this activities subsequently offered improved fuel economy to all their customers (Erel et al., 2015). Therefore, endeavour of the business enterprise to make accessible technologies to customers at the lowest price so that most benefits can be deduced. In different manufacturing locations, the corporation has started a drive to decrease carbon footprint as well. It is also running to expand this drive to its a range of partners present in company’s supply chain, this includes vendors and dealers. Furthermore, the business enterprise has also started programme of tree plantation in and around plant as well as surrounding areas to make certain that ecological balance is maintained. The report herein states the activities undertaken and Tata Motors’ contribution post merger with JLR in developing economic, social as well as natural capital by means of its products and company processes (Boschma & Hartog, 2014).

Advantages of Cross Border Mergers

Crosswell International is necessarily a U.S based manufacturer as well as distributor of particularly health care products, Crosswell was approached by Material Hospitalar and expressed interested in the process of distribution of major product of the company “Precious Diapers” in case if acceptable scheme as regards pricing as well as payment terms can be attained. As the invoice for the export of the goods of Crosswell is denominated in terms of U.S dollars, the company Crosswell needs to be anxious about changes in the currency value (Kansal & Chandani, 2014). This can be referred to as the currency risk in this case. Also because the bank has long-established the L/C, it is said to be protected against changes otherwise deteriorations in the capability of Material Hospitalar to disburse in the upcoming period. Material Hospitalar will accept the goods on or before 60 days. Then it shall then move about the goods through the distribution system to retailers. Relying on the payment terms between Material Hospitalar and purchasers, it can either accept cash or terms for disbursement for the goods. As Material Hospitalar bought the goods through the 60 day time draft along with a L/C from the specific Brazilian bank, the entire payment of $379262.40 becomes due on 90^th day. It can be put to picture that the shipment as well as presentation of specific documents was necessarily on 30 plus 60 day time schedule to the specific Brazilian bank. Material Hospitalar is a company based on Brazil and has accede to make disbursements in terms of US dollars that is in the foreign currency, there is currency risk involved in the business transaction (Cavusgil et al., 2014).

Currency forward contracts can be considered to be an alternative for mitigation of currency risk. In essence, a forward contract can be considered to be a contract between two different parties to purchase or else sell a particular asset on a specified future period and at a particular price. The agreement can necessarily be utilized for the purpose of speculation else wise hedging. For purposes of hedging, they can enable a financier to lock in a particular rate of exchange. In particular, no transaction in cash occurs during the time of entering a specified agreement as the forward price as well as delivery price is essentially equal (Gitman et al., 2015). In itself, the price of delivery is selected in a way such that value of forward agreement remains equal. Particularly, the delivery price is selected such that value of this contract is zero irrespective of whether a long or else a short position in the agreement. In this case, the party that assumes a long position purchases the currency on a particular future data for a specified rate of exchange. On the other hand, the party that assumes a short position in the agreement sells the currency for a specific rate of exchange.

SWOT Analysis for Understanding the Impact of Cross Border Merger

Management of the firm can utilize the currency option for mitigating the currency risk involved in the business transaction. Essentially, currency option provides the financiers their right but not any kind of obligation to purchase or else sell a particular currency at a specified rate and that before a specified date. In essence, this mechanism is somewhat similar to forward contract (Shenkar et al., 2014).

In this case, financiers are not compelled to participate in the business transaction at the time of expiration of the currency. As such, in case if the exchange rate of the option is more desirable than the present spot rate, the financier would then exercise the currency option and gain benefit from the agreement (Deresky, 2017). Again, in case if the spot rate was more desirable, then the financier would allow the option to expire valueless and undertake foreign exchange trade in this spot market. However, this flexibility is not necessarily free and this option can replicate pricey ways to hedge the risk of currency.

There are several exchange-traded funds also simply referred to as ETFs concentrate on delivering long as well as short exposures to diverse currencies. In case if a financier purchased a particular asset that is mainly in Europe and was dominated in currency euro, then the daily swings in price of the U.S dollars against the euro will necessarily affect overall return from the asset. In this case, the financier would intend to go for long in this case. Again, by buying a fund such as ProShares Short Euro Fund, which would effectually short the currency euro, the financier would essentially cancel out the risk of currency related to the initial asset. In this case, of course, the financier needs to make certain to buy a specific amount of the exchange traded fund to become certain that the long as well as short exposures properly match (Deresky, 2017). Essentially, ETF that necessarily specialize in both long as well as short exposures of currency intend to match the real performance of currencies on which they are concentrated. Nevertheless, the actual performance often digresses owing to fund mechanics. Consequently, not all the currency risks can be eliminated although a vast majority of risks can necessarily be eliminated (Deresky, 2017). Therefore, the company under deliberation can consideration the option of hedging currency risk using the ETFs.

Various stages and their costs influence ability of Crosswell as an exporter in being competitive on product pricing for penetration in the Brazilian market

The manager of Crosswell responsible for export operations of the firm followed up the initial discussion by way of putting together an approximation of costs of export and pricing. The company Crosswell has the need to understand all the costs along with pricing suppositions for the entire supply as well as value chain since it reaches the customers. The manager of Crosswell is of the view that it is critical that any kind of arrangement /scheme that Crosswell enters into, directs to a price to Brazilian customers that is both fair to different parties engaged and at the same time competitive, provided the market niche intends to penetrate (Kansal & Chandani, 2014).

In this case, the company Crosswell proposed to market the diaper line to the Brazilian distributor for around R $34 for every case. This implies that that the seller that is Crosswell consents to cover diverse costs related to making the diapers available in the Miami docks. Essentially, loading cost of product aboard ship, of real shipping and of the related documents is necessarily R $4.32 for every case. In this case, the running total, that is R $38.32 for every case can be termed as the CFR that is cost and freight. Ultimately, the insurance expends associated to the probable loss of the products while they are in transit to the destination that is insurance for export costs R $0.86 for every case. Thus, total CIF is enumerated to be R $39.18 for every case or else R 97.95 Brazilian real for every case. In this case, it is supposed that the exchange rate of specifically R$2.50 Brazilian real for every U.D dollar. Therefore, in the end it can be said that the cost of CIF of approximately R$97.95 can be considered to the price charged by the exporter that is Crosswell to the importer on arrival in the nation Brazil. 

However, the cost to the distributor in acquiring the diapers from the port as well as warehouses of customs also needs to be calculated in terms of costs in reality (Kansal & Chandani, 2014). In actual fact, the distributor would have the need to bear the costs of storage as well as inventory costs that equal R$8.33 for every case. This necessarily brings the price to R$107.63 for every case. In addition to this, the distributor in Brazil also adds a specific margin for distribution services of approximately 20% , further increasing the price as marketed to the final retailers to R$139.15 for every case. In the end, the retailer also include expends, taxes as well as mark up to reach to the shelf price of R$245.48 for every case. In essence, this final retail price approximation now permits both Crosswell as well as Material Hospitalar to assess competitiveness of price of diaper in the market of Brazil, and provides a foundation for further negotiation to be carried out between the two different parties.

Therefore, it can be hereby said that there are various stages and costs involved in the business transaction (Kansal & Chandani, 2014). The primary concern that both the business enterprises hold can be considered to be the total price to the end consumers in the nation Brazil that is equal to R$245.48 for every case  or else R$0.70 for every small sized diaper. This price can be considered to be pretty high. There are major rival players in the Brazilian market for high quality diapers such as Kenko do Brasil, Procter and Gamble (US) as well as Johnson and Johnson who provide diapers at a cheaper rate. Therefore, it can be said that the different stages and the costs involved prove to be an impediment for the company in the way of offering a competitive price in the Brazilian market.  

References

Barr, M. J. (2018). Budgets and financial management in higher education. John Wiley & Sons.

Boschma, R., & Hartog, M. (2014). Merger and acquisition activity as driver of spatial clustering: The spatial evolution of the Dutch banking industry, 1850–1993. Economic Geography, 90(3), 247-266.

Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.

Brooke, M. Z. (2016). Handbook of international financial management. Springer.

Brueller, N. N., Carmeli, A., & Markman, G. D. (2016). Linking merger and acquisition strategies to postmerger integration: a configurational perspective of human resource management. Journal of Management, 014920

Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.

Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.

Cheng, M., Green, W., Conradie, P., Konishi, N., & Romi, A. (2014). The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), 90-119.

Deresky, H. (2017). International management: Managing across borders and cultures. Pearson Education India.

Deresky, H. (2017). International management: Managing across borders and cultures. Pearson Education India.

Erel, I., Jang, Y., & Weisbach, M. S. (2015). Do acquisitions relieve target firms’ financial constraints?. The Journal of Finance, 70(1), 289-328. 6315626270.

Finkler, S. A., Smith, D. L., Calabrese, T. D., & Purtell, R. M. (2016). Financial management for public, health, and not-for-profit organizations. CQ Press.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Greve, H. R., & Man Zhang, C. (2017). Institutional logics and power sources: Merger and acquisition decisions. Academy of Management Journal, 60(2), 671-694.

Hodge, G. (2018). Privatization: An international review of performance. Routledge.

Kansal, S., & Chandani, A. (2014). Effective management of change during merger and acquisition. Procedia Economics and Finance, 11, 208-217.

Lane, M. P. R., & Milesi-Ferretti, M. G. M. (2017). International financial integration in the aftermath of the global financial crisis. International Monetary Fund.

Mukherjee, D. (2016). Case analysis: Tata Motors’ acquisition of Jaguar Land Rover. The Business & Management Review, 8(3), 48.

Shapiro, A. C., & Moles, P. (2014). International financial management. John Wiley & Sons, Incorporated.

Shenkar, O., Luo, Y., & Chi, T. (2014). International business. Routledge.

Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and applications. Pearson.

Wild, J. J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.

Zietlow, J., Hankin, J. A., Seidner, A., & O’Brien, T. (2018). Financial management for nonprofit organizations: Policies and practices. John Wiley & Sons.