Право / 2.
Хозяйственное право
PhD student Aldabergenova Botakoz
Eurasian National
University after of L.N. Gumilyev, Kazakhstan
Mergers and acquisitions: differences in implementation
Mergers
and acquisitions, as one of the priorities of the strategic business and its
capitalization doesn't currently lose their relevance in the business world over a century. And if, 10-20 years
ago, the M&A transactions were as an instrument of companies’ expansion and
one of the most preferred forms of investment in the most economically developed
countries as USA, UK, France, Germany, etc., now developing countries also have
gradually began to get involved in the business cycle of the mergers and
acquisitions. This was primarily the result of world globalization’s process
and the expansion of the international companies which over the past 20 years
actively began to enter to the emerging markets of other countries and attain competitive
positions, both on local and world markets.
The
process of the M&A, despite the similarity of its perception in the
business environment in the world, at the procedures and methods of its conduct
is not identical everywhere, i.e. there is no any single mechanism of the M&A,
following which, the M&A transactions would be used worldwide for all
companies and countries. What we can say about the whole world, when even
within one state there is no the single common mechanism due to the specificity
and characteristics of each company. Thus, if the mechanism of the M&A,
positively carried out in one situation with the companies, for example, A and
B, absolutely can not be appropriate for the merger situation of C and D firms, even if
these companies have resemblance and they work in the same industry.
In
addition, the M&A transactions have not only internal differences, but also
differ in their outward appearances and have their country-specific features,
i.e. differences depending on the social, economic, legal and cultural
peculiarities of the country in which the M&A takes place.
So, for
instance, in the
Anglo-Saxon model of corporate governance, especially in the U.S. and the UK,
the M&A are indispensable part of everyday business practice and the most
important part of the mechanism of corporate control. This is a result of the
development of stock markets in these countries, dispersion of the share capital,
business cultural traditions and customs, according to which the company is
considered only as a stake of shares for the owners. United States is not only
a leader in the M&A transactions, but also the founder of the M&A
market. After a long way length in century the American M&A market has
experienced all types and forms of the mergers and acquisitions, ranging from
privatization and criminal hostile takeover until this stage of the most civilized
and professionally performing M&A transactions in the world nowadays.
In
addition, in the U.S. and Europe for performing the M&A, antitrust
authorities play a very important role. They carefully consider the M&A
transactions into the legality of their conduct and compliance with antitrust
policy. The media plays a vital role in information support of the M&A,
creating a particular society's attitude to the M&A deals.
For example, in the UK the public
non-governmental organizations have also played a significant role. They also
consider the M&A transaction into the legality of its conducting before
M&A application will be given to antitrust authorities and provide some
recommendations to address identified deficiencies proposed the M&A. And
even if an appeal to such organization is not legally binding, the British
companies in conducting the M&A transactions try to seek the endorsement of
these organizations due to factors such as reputation and the desire to
minimize risks.
Another
feature of the M&A abroad is the presence in such transactions mediators -
specialists, experts on resolving the conflicts in the ongoing mergers or
acquisitions. I.e. it is not financial brokers or legal consultants for serving
the M&A transactions, it’s a namely, the experts working on already emerged
and emerging conflict situations of the M&A transactions at any stage of
its implementation. Based on practice, can be argued that top managers or
owners of companies are often not able to soberly assess the situation and take
the necessary compromise. In such cases, the assistance of mediators is crucial
for the successful completion of the M&A, and their goal - to assist in
resolving existing conflicts and to obtain an agreed solution between the two
parties. Abroad, the mechanism of mediation is used more than 20 years. For
example, in Britain with the help of mediation have been solved about 21% of
commercial conflicts, in China - 25%.[1]
Also, it should be noted that the practice of
foreign countries, in particular the United States and European Union
countries, allocate another form of the mergers and acquisitions as «pure
conglomerate merger» or «pure merger». This refers to the merging of two or
more companies to create a new company, which will be subsidiary to parent companies
or so-called «merger of assets» without the merger the companies themselves.
Another positive feature of the
M&A in the U.S., Europe and other developed countries is the transparency
and information openness of the mergers and acquisitions. So, for example,
public companies before conducting M&A announce the goals of such deal that
they strive to get due to the merger or acquisition. For example, at the
expense synergies save $ 3 billion over two years. In such cases, the market,
shareholders and management of the target company understand what kind of
results are expected from offered M&A, and accordingly, how to
evaluate effectiveness of the M&A in the future.[2]
Same important role in the
process of the mergers
and acquisitions in the U.S. and Europe played an agreement of exclusivity,
such as the adoption of M&A parties for commitments to be true from the beginning to
the end of the process of the M&A with each other and not to negotiate with other parties.
In this case it is not only about the legal side of the deal, but also closely aligned with
business ethics and reputation.
In
Japan, the M&A transactions are based on the principle of a purely
voluntary association. In this country there are strict institutional and
social barriers
for
hostile takeovers.
Institutional barriers are considered that the management of company provides
permanent shareholders, usually from the same financial-industrial group
(keyretsu) or finds friendly banks. The social barriers mean that the cultural
traditions of the Japanese business community see the company as a community
with its life-long employees. Takeover of the company, together with its staff
very strictly condemned. As a rule, employees, trade unions, administration and
major shareholders have solidary position regarding the M&A. Resistance of
employees is a major obstacle for Western companies in their attempts to
acquire the Japanese firms.
However,
in connection with a decade of economic stagnation, the Japanese government
since 2002, has revised its views on foreign relations with other countries and
announced a policy to promote foreign direct investments and consequently, the
M&A transactions. After such changes in Japanese law Western and U.S.
companies were quick to enter into the Japanese market. This was shown by a
number of acquisitions of Japanese companies, among which the acquisition by
American retail chain «Wal-Mart» 37% of Japan's largest retail trade «Seiyu» or
buying by French car company «Renault» - the second-largest Japanese automaker
«Nissan», and as the acquisition of private American investment fund
«Ripple-wood» of Japanese banks «Shinsei bank» and «Long Term Credit Bank».
However,
the situation in the Japanese M&A market still remains difficult. Many,
even the big mergers in Japan in recent years have proven ineffective. One of
the most striking examples is the largest merger of equals banks, carried out
between the Bank of Tokyo «Fuji Bank» and «Industrial Bank of Japan» in order
to rescue from bankruptcy. This M&A transaction is valued at over $ 70.8
billion turned into a loss of control over operations, increasing bureaucracy,
problems in the accounting system and the inability for customers to get money
from ATMs issued by the bank cards.
Another
negative feature of the M&A transactions in Japan is a very long period of
its preparation and implementation. Often, such transactions take two or three
years that is intolerable in today's global economy.
Also,
the typical problem for the most Japanese M&A is the apparent resistance of
the personnel changes and post-merger integration. Surveys of employees of
Japanese companies shows that most of them preferred a competitor, countryman,
and not a foreign company, even if such deal would be less effective. Research
of international company «Deloitte, Touche & Tomatsu» of 540 mergers
involving Japanese companies revealed a very low efficiency of these
transactions. Only 8% of Japanese companies achieved their intended purposes,
30% failed to realize the goal, while the remaining 62% turned out to be
unprofitable.
It
should be noted that the motives for the M&A in both developed and
developing countries are different. Thus, the main motives of the M&A in
industrialized countries are the liberalization of markets, reducing government
intervention in economy, and as a consequence, entry of new participants and
increased competition. In developing countries, the M&A transactions occur,
usually within the privatization program, as implemented in the course of
liberalization.[3]
Unlike
developed countries, developing countries only in the late 90's. began to play
a more prominent role in the M&A market, which often implemented in the
form of programs for privatization, among them the prominent role has played by
Russia, to expand its activity in the M&A market since 2000.
In Kazakhstan the concept of the
mergers and acquisitions has come due to the activity of foreign investors, particularly
from China, USA, India and Russia, which carefully began to enter into the Kazakh market only
in the last few years.
Despite the claims of Kazakh
financial analysts that the M&A market in Kazakhstan is currently a quite
active and the competition in Kazakh market today is high enough, a comparative
analysis of the global M&A market allows me to conclude that the M&A market
in Kazakhstan not only not active, but also it is not
sufficiently developed to be called as «market» in general.
Kazakh M&A transactions are
characterized by direct state influence on business processes in the country.
In connection with it, mainly M&A transactions there undertaken by major
national companies or companies holding a dominant position in the market. Despite
some activity of Kazakh companies to invest abroad and the acquisition of
foreign companies, yet a large proportion of the M&A in Kazakhstan, carried
out with the initiatives of the foreign companies.
Talking
about the main problems of the M&A in Kazakhstan, analysts point out the following
shortcomings:
1)
Informational secrecy of local companies. For business owners who want to sell
their assets, there is a great risk of information leakage. Therefore, this sort of the M&A
transaction business owners try to implement without the help of brokers or
financial and legal consultants that, for example, in the Western practice is
unacceptable.
About
the opacity of the M&A in Kazakhstan is demonstrated by the fact that
Kazakhstan has no one systematically tracks the market trends of the mergers
and acquisitions, and those analytical and statistical information, which
prepared by the audit and finance companies are not fully reflect the essence
of all M&A transactions in Kazakhstan, but focused primarily only on the
large M&A transactions;
2) Undeveloped stock market, because
companies are still not transparent and especially in part of their financial
reporting and decision-making. The developed stock market would help the
companies and potential investors determine the market value of the company;
3) The existence of a strong
affiliation of companies with financial-industrial groups, which leads to
reluctance to change the situation, lack of effective corporate governance;
4) Inadequate legislation.
Unfortunately, Kazakhstan today is not distinguished by the perfect legislation
that allows fully protect the rights of owners of private structures, as
evidenced the practice occurred, or trying to come of hostile takeovers and
raiders from the part of some individual companies, not without the participation of government agencies over the
last five years;
5) Lack of both theoretical and
practical experience of local companies in conducting the M&A;
6) Lack of professionals who can
professionally accompany the M&A transactions. Also, one of the problems of
the Kazakh practice of M&A is that many Kazakh companies, as a rule, do not
use the financial and legal professionals in the process of negotiating a
comprehensive test facility of the transaction and drafting the agreements,
thus creating a risk of inadequate risk assessment and management. The
integration of merged companies almost in all cases performed by staff members
of the companies, whereas in Europe and the United States the combined
companies had long begun to attract external experienced consultants involved
in the M&A process at the first stage in order to conduct a smooth integration
process;
7) Weak role of the antimonopoly
authority in the country which is not able to improve the competitiveness of
local companies and protect the rights of business owners and consumers.
Monopoly
or oligopoly in Kazakhstan, unfortunately, is not the object of reflection for
the competition authority of the country. This is evidenced by the activities
of known Kazakh monopolistic companies which control a larger fraction of their
market sectors, among which are the companies in the telecommunications, transportation
and shipping, banking, oil and gas, and mining and other industries.
Thus,
talking about the M&A in the context of different countries can be noted
that in the United States, Britain and some other European countries target
companies are less profitable compared to the acquirer. By contrast, in Japan,
Canada, Australia and New Zealand, the target companies were much more
profitable than the acquiring companies.
You can
also note the differences in the process of the acquiring a controlling stake
in the acquired company in various countries. For example, if the United
States, owing to the presence of a large number of shareholders, the
controlling interest is typically 10-15%, and decisions are taken by simple
majority vote of the voting shares, voting, for post-Soviet countries,
including Kazakhstan, controlling stock is usually 51%. However, even such
percentage of shares does not allow to participants to make decisions on many
matters of the company. In the reorganization, liquidation, sale of the company
and other major transactions, the decisions in accordance with the laws of
these countries are taken by qualified majority of the total voting shares.
With
regard to international mergers, as noted by Russian expert Konina N., less
than 3% of the total number of the international M&A is officially belong
to the mergers (though many of them only known as mergers, but in reality are
not), and the remainder of the acquisition . On the acquisition with the
purchase of minority shareholders (10-49%) account for approximately 1/3 of all
international transactions in developing countries and less than 1/5 in
developed countries.[4]
Thus,
summing up stated above, we can say that the M&A transactions, despite the common
mechanism for their realization, still have their differences and
specificities, depending on the legal and social systems of the countries where
they operate. However, as international practice shows, the majority of
developing countries are on the way to develop their economies in the same
sequence as the developed countries took place many years ago. One can only
hope that Kazakhstan does not need such a long way length in a century in order
to repeat the economical experience of the United States and Western Europe,
no longer fall under the category «Third World country» and enter in number if
not the most developed, then at least in the category of competitive countries.
References:
1) Егорова Н.Е., Смулов А.М., Цыганов М.А.
«Концептуальная основа согласования интересов в сделках по слиянию и поглощению
предприятий» // Сб.: Теория и практика эффективного функционирования
предприятий, вып. 4, Москва: ЦЭМИ РАН, 2006;
2) Конина Н.Ю. «Слияния и поглощения в
конкурентной борьбе международных компаний» // Монография. Москва. 2005;
3)
Путеводитель по рынку профессиональных услуг «Слияния и поглощения» // Серия
путеводителей справочников «Проверено. Коммерсантъ», М. Альпина Базнес Букс, The Platzdarm Group, 2004
[1] Егорова Н.Е., Смулов А.М., Цыганов М.А.
«Концептуальная основа согласования интересов в сделках по слиянию и поглощению
предприятий» // Сб.: Теория и практика эффективного функционирования
предприятий, вып. 4, Москва: ЦЭМИ РАН, 2006
[2] Путеводитель по рынку профессиональных услуг «Слияния
и поглощения» // Серия путеводителей справочников «Проверено. Коммерсантъ», М.
Альпина Базнес Букс, The Platzdarm Group,
2004
[3] Конина Н.Ю. «Слияния и поглощения в конкурентной
борьбе международных компаний» // Монография. Москва. 2005
[4] Конина Н.Ю. «Слияния и поглощения в конкурентной
борьбе международных компаний»// Монография. Москва. 2005