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International Research Journal of Finance and EconomicsISSN 1450-2887 Issue 15 (2008) EuroJournals Publishing, Inc. 2008http://www.eurojournals.com/finance.htm

International Acquisitions: Strategic Considerations

H. Donald Hopkins

Temple University, Fox School of Business and Management

Philadelphia, PA 19122

E-mail: [email protected]: 215.204.8146; Fax: 215.204.8029

Abstract

More and more companies, large and small, are entering into combinations thatspan international borders. Some are instituting joint ventures, others are formingpartnerships, and still others merging or making outright acquisitions. Cross-border M&Ais a large and growing part of all FDI. In an age of globalization, cross-border M&Arepresents one of the most important means of integrating the worlds economies. Mostresearch on M&A, however, indicates that firm performance is not positively affected. Thepurpose of this article is to consider this activity from a strategic perspective. A very smallpart of the research on M&A is devoted to finding specific strategies that perform betterthan others. This article is interested in determining if there certain international acquisitionstrategies that are likely to succeed.

IntroductionWhere once there was one now there are two. DaimlerChrysler is no more. It seemed like a good ideaat the time. It may have, in fact, been a good idea. Recent research would say that this merger was agood idea (Kang, 1993; Morck & Yeung, 1992). The failure could most likely be blamed on poor post-merger leadership, flawed integration, and changed industry conditions. Whats more, it could havebeen saved if it had followed the script written by the Pharmacia-Upjohn merger (Belcher & Nail,2000) where after initial difficulty a skilled turnaround artist from the outside was brought in to savethe day. This was a leader who had no loyalty to Pharmacia nor Upjohn.

The new cross-border merger wave (2003-2006) seems to have created more value than theprevious one (1991-2000). Much has been written about mega-deals like DaimlerChrysler. Cross-border deals make for dramatic stories that many find thrilling to read about. These deals appeal tomanagers desire to build something bigger and leave an international legacy. Many of them,

unfortunately, do not work out. A few, however, do work. Some companies, like GE Capital, have anexcellent track record with international acquisitions (Ni & Wang, 1999; Xu, Wang &Jin, 2000; Jiao &Yang, 2002).

Those that do work lead others to continue to pursue cross-border deals and provide for theirjustification. Each one seems to rest on a story and a rationale that cannot be briefly told. For everycase of successful cost reduction or R&D synergy there are many other cases of outright failure,foolishness, and negative synergy. While some companies become so practiced that they establishongoing "integration teams," others seem to be start from ground zero with each deal.

According to the UN World Investment Report of 2007,The continuing strong M&A activitycan also be partly explained by the fact that the current M&A boom has produced more corporate valuefor the acquiring companies than the previous one; the value of the companies created by M&A in the


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previous boom shrunk continuously as these activities progressed. Could this be some kind oflearning effect? Of course, it might be too soon to pass judgment on the current boom.

There has been quite a lot of research on M&A activity over the years. Research on cross-border mergers and acquisitions has also become more popular. In a recent review, Shimizu, Hitt,

Vaidyanath, and Pisano (2004) review 31 studies on cross-border mergers and acquisitions. Theycategorize these studies into three streams: cross-border M&A as a mode of entry (e.g., comparing CBM&A to greenfield entry); CB M&A as a dynamic learning process; and finally, CB M&A as a valuecreating strategy (examining post-M&A performance with longer term measures). However, none ofthese streams address the focus of this paper. With all the different approaches to CB M&A are therecertain long-term strategies that are better than others? For example, might it be that an acquiring firmthat intends to use its acquisitions as a foundation for future growth and consistently acquirers high-tech firms in the same industry with complementary but not identical skills, that have compatibleorganizational and national cultures, and intensively markets itself to the international business pressand investment community is more likely to succeed than are other strategies?

In fact, some research studies suggests that with the right strategy and the right approach to

post-merger integration, cross-border acquisitions can create value for the acquiring firm (Belcher &Nail, 2000; Benou, Gleason, and Madura, 2007; Colombo, Conca, & Gnan, 2007; Seth, Song, andPettit, 2002; 2000). Thus, even though research suggests that most acquisitions fail, it may make sensein some cases.

Some researchers have accused the senior managers of acquiring firms of thinking they cansucceed where most others have failed and thus demonstrating what is called management hubris (e.g.,Seth, Song, & Pettit, 2000). Accusations of hubris on the part of senior managers is especially damninggiven that research to date on M&A activity so clearly demonstrates that most mergers, both domesticand cross-border, do fail and this observation has been widely reported in the business press. Pointingto management hubris, however, may be unfair since in many other areas of human activity manystrive to succeed at things where the odds are long. These include starting a new business, submittingan academic paper to a highly selective journal, and running for president, among others. In these typesof activities we dont claim that those attempting to succeed in these activities are being foolish.

Researchers sometimes wonder why managers continue these losing courses of action whenresearch shows most fail (Brouthers, van Hastenburg, & van den Ven. 1998). The answer may be thatmanagers quite reasonably think that they can succeed where others have failed because some do, infact, succeed. Whether their efforts are given a negative label quite possibly depends if it is beingjudged by an outsider (i.e., an academic) or an insider (i.e., a manager).

The current cross-border merger wave had its start in 2003 and was still moving up in 2006.The current wave has yet to surpass the previous one in terms of the number of $1 billion deals. Thevalue of deals over $1 billion grew from $32.7 billion in 2003 to $96.0 billion in 2006.

In light of the growing importance of cross-border mergers and acquisitions for corporategrowth, this article intends to focus on what managers are able to control, the choice of cross-bordermerger strategy and the way that strategy is implemented. A second purpose is to update earlier andmore general reviews of cross-border M&A research (Shimizu et al, 2004; Hopkins 2002).

International M&A Trends and Regional PatternsThe current merger wave (i.e., 2001-2006) is different from the wave that preceded it. The firstinternational merger and acquisition wave during 1994-2000 was largely in the information andcommunication technology industries. The current wave, however, is in consumer goods, services,financial services, energy and basic materials. Some transactions make a lot of sense. They arestrategic in nature. They are done for strategic reasons including growing market share and quicklyreaching new markets. In a number of other cases, the deal fever catches on. Some CEO's may do dealsbecause they want to be bigger than their competitor.


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Many of the mega-deals involve cross-border acquisitions that allow firms to gain immediateaccess to one or many foreign markets, access that would take many years to develop from greenfieldsubsidiaries. These deals can be used to broaden a product line, move into a new market, and create orstrengthen capabilities more quickly than it would take through internal means.

The most recent wave is taking place in all regions of the world. The value of North Americancross-border M&A grew by 100% in 2006 to $242 billion from $132 billion (sales). In Europe thevalue of deals more than doubled from 2004 to 2006. The value of deals in Europe was $451 billion,making it the area of the greatest activity by far. The single country with the greatest amount ofactivity, however, was the U.S. Second was the United Kingdom, and then come Germany and France(UN World Investment Report, 2007).

Strategic Logic Driving M&AsOne important aspect of understanding cross-border M&A is to examine the logic driving the deals.Strategic motives involve acquisitions that improve the strength of a firm's strategy. Examples would

include mergers intended to create synergy, capitalize on a firm's core competence, increase marketpower, provide the firm with complimentary resources/products/strengths, create economies of scale,open new markets, or gain access to deeply embedded resources.

Britains FirstGroup, the dominant firm in public transportation in the UK, acquired theAmerican firm Ryder Transportation. The fact that FirstGroup made a cross-border acquisition thatstayed within the same business sector while allowing it to enter a major new market would definitelyqualify it as strategic. What makes it strategic is that by staying in the same business sector FirstGroupstrengthened its core competence in transportation.

Merging in order to create synergy is probably the most often cited justification for an acquirerto pay a premium for a target firm. Synergy can be created by redeploying assets. This can mean one oftwo things. In the first case, the acquiring firm may transfer a resource belonging to the target firm to

the acquiring firm. Colombo, Conca, and Gnan (2007) found that a strong predictor of acquisitionperformance was the extent of asset redeployment from the target to the bidder. In the second case,assets may be redeployed from the bidder to the target. For example, when Renault acquired Nissan theleadership skills of CEO Ghosan were redeployed to the benefit of the target. Firms such as Ford andGM were unsuccessful in luring Ghosan away from Renault. The greater the extent to which importantresources are embedded in one firms operating procedures, routines, or culture, the more likely that amerger with a carefully managed post-merger integration process will be required to gain use of theseresources.

In a recent study, Seth, Song, and Pettit (2002) subdivided a sample of firms where a cross-border acquisition of a U.S. firm was made according to the acquiring firms motive. The possiblemotives were synergy, managerialism (acquiring for the personal benefit of managers), and hubris

(overconfidence). They found, interestingly enough, that only the acquirers motivated by synergycreated positive valuation gains for the acquiring firm.However, in a book by Mark Sirower, The Synergy Trap: How Companies Lose the

Acquisition Game, the author argues that synergy rarely justifies the premium paid. Sirower declares,"Many acquisition premiums require performance improvements that are virtually impossible to realizeeven for the best managers in the best of industry conditions". He further argues that the net presentvalue of an acquisition can be modeled as:

NPV = Synergy Premium

And that firms that don't realize this and don't realize that synergy almost never justifies thepremium paid are falling victim to the "synergy trap." He cites as a typical example the acquisition ofWordPerfect for $1.4 billion by Novell. "Did they ask what Novell, the parent, could do to make itmore competitive against the office suite products of Microsoft or Lotus? If they asked, their answersapparently left something out. Novell lost $550 million of market value on announcement of theacquisition. Since then, Microsoft has continued to gain market share and Novell recently sold


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WordPefect, less than two years later, to Corel for less than $200 million -- a loss of over $1.2 billion"(p. 10). For the past two decades, the premiums paid for acquisitions--measured as the additional pricepaid for an acquired company over its pre-acquisition value--have averaged between 40 and 50 percent,with many surpassing 100 percent. Sirower concludes that the higher the premium is, the greater is the

value destruction from the acquisition strategy.In exploiting a core competence, a firm takes an intangible skill, expertise, or knowledge andleverages it by expanding its use to additional industries where it may create a competitive advantage.Thus a company such as Honda may develop a core competence in engineering internal combustionengines and try to use it as a basis for competitive advantage in several different businesses. All ofHonda's businesses involve internal combustion engines as a power source until recently. Theirbusinesses include automobiles, motorcycles, outdoor power equipment, generators, and lawnmowers.However, their most recently entered business, corporate jets, is another story.

One definition of market power rests on the value of having high market share. Another restson the notion of increasing the firm's power in its relationship with customers by offering a broadrather than narrow product line. If we have high market power this puts us in a stronger position to deal

with buyers. So if we sell products to a buyer and then we go out and acquire several new productbrands that the same customer buys we become a more important and powerful suppler to thatcustomer. We also may become a place where the customer may be able to do "one stop shopping."

One strategic reason to acquire is to gain complimentary products, resources or strengths. Forexample, the U.K. record company EMI, which became successful by producing and selling Beatlesrecords, planned in the 1970's to diversify based on their development of the CT scanner. The CTscanner allowed a doctor to view 3-dimensional X-rays of the human body. However, EMI hadabsolutely no resources to compete in the most important medical market, the U.S. They had no salesor service network and no experience in the U.S. When they entered the U.S. they had temporarysuccess based on being the only firm with the CT scanner. But shortly after their entry the market wastaken away by firms that copied their technology and had other strengths in the U.S. medical

equipment market. If EMI had acquired a firm in the U.S. with an established service and sales force,established relationships with customers, and other related medical products, they would not have beenas vulnerable to competitors.

National differences can be a source of complimentary strengths in cross-border M&As.National differences between countries, such as having a national strength in working in groups (i.e.,collectivism in Japan) versus that of independent thinking (i.e., individualism in the U.S.) suggest thatcombining two companies that are based in different countries may result in a stronger combinedcompany. Research shows that the greater the cultural distance of the countries in which mergerpartners are based the greater the potential benefit (Morosini, Shane, & Singh, 1998).

Imagine a product being sold in two separate countries where both markets share the same keysuccess factors (KSFs). Imagine that in one of these markets the parent firm has discovered andsuccessfully utilized the KSFs. However, in the other market the competing firms have yet to discoverwhat these key factors are. The potential increase in value from a firm that has the key informationacquiring a firm in another country that does not have the key information should be readily apparent.This is an example of parenting advantage.

Parenting advantage, as discussed by Campbell, Goold, and Alexander works according to athree-step process (1995). First, a buyer attempts to identify the KSFs for a potential target firm.Second, the buyer next identifies the subset of KSFs that appear to have room for improvement. Theserepresent parenting opportunities. Third, the buyer evaluates itself to determine if it has the resourcesneeded to help the target firm improve. If there is a match between the parent's resources and thecritical success factors with room for improvement then the merger makes strategic sense. Parentingadvantage is simply an example of redeploying assets from the bidder to the target.

Seth, Song, and Pettit (2002) argue convincingly that cross-border mergers have several sourcesof potential synergy not available to domestic mergers. One is acquiring a firm in a less risky and morestable country than the firms home country. Second, reducing the risk associated with exchange rates.


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Third, if there is a failure of the input markets of the target firm or there is a lack of growthopportunities in the home market potential for synergy will exist. Finally, the authors argue, there willbe reduced variability in the firms earnings stream because of the less than perfect correlation betweendifferent markets and because they believe that investors cannot duplicate the same investment

portfolio at the same or lower cost.An important motive for many cross-border acquisitions is to use it as a method to enter newmarkets in new countries. Increasingly firms are acquiring already established firms as the fastest wayto enter a new country. Acquisition is the most important method of developing FDI. Often a marketmay be put into play because it has become deregulated. Firms from other countries may seeacquisition of the formerly regulated or state owned operation as the fastest way to gain a strongposition in the new market.

In addition to being fast in acquiring a position in a particular market, it is a way to gain entrywithout adding additional capacity to a market that may already have excess capacity. This may beparticularly important in mature markets. It may make much more sense in a mature market withestablished brands names to acquire a brand name and the company behind it instead of trying to grow

a new brand name in a market where customer loyalty is hard to change.To protect, maintain, defend or grow a market position, companies may find it necessary toacquire instead of starting from "ground zero." For example, why would a strong and well-endowedcompetitor like Bridgestone find it useful to acquire a firm like Firestone? If you can buy a brandname, buy distribution, and buy customer relationships in a market that is important this may beconsidered a strategic motive (Nevin, 1990).

In thinking about acquisition as a mode of entry into a new market it is useful to compare it tojoint ventures and greenfield entry. Joint ventures, M&As, and greenfield entries have in all common ahigher degree of control/risk and higher need for resource commitment. However, M&As offer morecontrol than a joint venture and are faster to implement than a greenfield entry.

Furthermore, research shows that foreign buyers are more likely to use acquisition rather thanestablish a greenfield subsidiary when they do not have clear advantages over their rivals and whenthey plan to manufacture a product that they do not manufacture at home (Hennart & Park, 1993). Thusfirms are apparently acquiring competitive advantage and experience.

Economic motives are an important subcategory creating strategic logic. One example is toestablish economies of scale. A second closely related reason is to be able to reduce costs due toredundant resources of two firms in the same or closely related industry. Thus if we are acquiring afirm in the same or a closely related industry and there is substantial overlap between the twobusinesses there may be ample opportunities to reduce costs. A third reason is that the stock of thefirms from a particular country may be undervalued. A fourth reason is macroeconomic differencesbetween countries such as different growth rates. Finally, exchanges rates may play a role. Recentresearch indicates that acquiring a foreign firm when the home country currency has appreciated inrelation to the target firms currency has great benefits for the acquiring firm when the industry ishighly technological (Georgopoulos, 2008).

The merits of using mergers to reduce costs are disputed by managers and by practitioners. Forexample, managers have been heard to comment that cost reductions are the merger benefit that is mostlikely to be achieved whereas the achievement of synergy is highly uncertain. On the other hand,Michael Porter argues that what passes for strategy today is simply improving operationaleffectiveness. Porter argues,"In many companies, leadership has degenerated into orchestratingoperational improvements and making deals" (1998).

It is understandable how operational effectiveness may have come to be the driving motive formany mergers, however. Often at the same time a merger is announced there will be an announcementof a cost reduction target. For example, when Daimler-Benz acquired Chrysler it was announced thatthe merger would lead to $1.3 billion of cost savings in the first year mainly through combinedpurchasing. Of course, with the recent dissolution ofDaimlerChrysler its doubtful that any of this wasrealized.


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Most mergers are, of course, driven by more than one motive. Thus to argue the merits ofoperational effectiveness versus those of strategy is perhaps a false argument. For example, when theentertainment company Viacom acquired Paramount movie studios cost savings were importantbecause of the need to reduce the resulting debt. But more important was the theme set by CEO

Sumner Redstone to use Paramount's entertainment content as the core of a strategy focused on thevalue of content over distribution.Research shows that one important driver of cross-border acquisition may be undervaluation

(Gonzalez, Vasconcellos, and Kish, 1998). This research showed that for cross-border mergers duringthe period of 1981-1990 U.S. firms were more often targets than bidders. And the data suggest that iswas related to differences in valuation. Differences can be due to the stock market or exchange rates orboth.

Finally, a driver of cross-border mergers may be differences in the macroeconomic conditionsin two countries or differences in the way a particular industry is structured in a particular country. Inthe case of macroeconomic conditions, one country might have a higher growth rate and moreopportunity than another other country. Thus it would seem reasonable to expect the slower growth

country to be more often home to acquirers while the faster growth country is likely to more often behome to target firms. In the case of industry structure, a firm based in one country might want toacquire a firm based in second country where the second country dominates that industry, e.g. SiliconValley, Wall Street, and Hollywood.

Firm PerformanceGiven the discussion about motives, the next logical question is how well have M&As lived up to theintentions of managers. The answer: not very well. Acquisitions, in general, do not appear to result inan increase in value nor do they lead to strong financial performance. More specifically, the researchshows that the value of the acquiring firm does not benefit from an acquisition. However, there is some

evidence that related acquisitions and cross-border acquisitions with certain characteristics do addvalue.Though research on cross-border or international acquisitions has lagged behind its domestic

counterpart, some studies present evidence suggesting that cross-border acquisitions out performpurely domestic ones (Shimizu et al, 2004). For example, a study by Markides and Ittner shows that, incontrast to their domestic counterparts, 276 U.S. international acquisitions created value for theacquiring firms (1994).

A recent and intriguing study found that high tech cross-border acquisitions do indeed createvalue if the deal has certain characteristics (Benou, Gleason, and Madura, 2007). Using a sample of503 high-tech cross-border acquisitions, the authors found that the acquiring firm achieved positivevaluation results when the target firm had high visibility as a result of media coverage, and was

approved of by a top investment bank. Thus, if the acquirer can properly market its deal to the publicand investment community positive results are likely to result. This is an encouraging result.There seems to be clear evidence that M&As often fail. But this depends on how one defines

failure. If failure is used in an extreme sense, such as the sale or liquidation of the business, then therate of failure is relatively low. If failure is the attainment of financial objectives, then the rate offailure is high. If failure is attainment of managements broader objectives, then the rate of failure islow. In fact Brouthers, van Hastenburg, and van den Ven (1998) found that the managers of theacquiring firm were overwhelmingly satisfied with their acquisitions.

The conclusion on the success or failure of a deal also depends on time horizon over whichevaluation is done. Research that has examined short-term stock reaction to merger announcements,have found that the price of the target's stock rises while the stock of the acquirer stays about the sameor goes down. Target share prices increase with the expectation that there will be a bid that issuccessful and involves a premium above the current market price of the stock. Acquirer prices stay thesame, in general, as the market reacts conservatively, depending on the specifics of the deal. Though


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these short-term studies have come to dominate merger and acquisition research there is some questionwhether this is best way to gauge the affect of M&As from a strategic perspective. Those who havejudged M&As on a long-term basis and those who that examined success more broadly have reported amore positive outcome.

For example, an article from the New York Times reviewed Ford's investment in Mazda andconcluded that it has taken twenty-years for the companies to start to reap benefits from theirrelationship (Strom & Bradsher, 1999). Research which has examined how managers assessed theirown mergers found that the managers concluded that they were extremely successful (Brouthers, vanHastenburg, & van den Ven, 1998).

Post-Merger IntegrationIntegrating merging firms is a process fraught with difficulty. It may well be the most important causefor failure among cross-border mergers. The need for integration has become more intense as mergershave increasingly moved away from unrelated conglomerate mergers to related and horizontal ones.

And of course, cross-border acquisitions are more complex than purely domestic ones givendifferences of national culture between firms.

One survey found that one-third of all acquisition failures were because of integration problems(Shrivastava, 1986). Another study suggests that cultural fit has a major effect on post-mergerperformance and that companies that allow multiculturalism and prevent too much control performbetter than less permissive firms (Chatterjee, et. al., 1992). The value of cross-border mergers hasalready be noted earlier in this paper based on research showing that the greater the cultural distancebetween merging firms the greater the benefit due to national differences. Furthermore, Michael Porterhas argued that the origin of competitive advantage is the "local environment"(1998). Thus if we are aGerman firm interested in the computer software industry we might want to acquire a firm in the bestlocal environment (i.e., Silicon Valley) and try to help the local expertise spread to the parent firm.

A recent book on cross-border mergers, acquisitions, joint-ventures, and alliances concludes,"The empirical evidence concerning the performance of cross-border M&As, JVs and alliances so farpresented suggests that, when handled effectively, a company can actually turn national culturaldistance or initial deep-rooted cultural resistances into lasting practical advantages. Through executiveoriented managerial approaches, a company's leaders and key managers can crystallize the potentialupside associated with functioning global co-ordination mechanisms across national borders and localcultures" (Morosini, 1998).

International Acquisition StrategyResearch by Duncan and Mtar (2006) examines in detail the successful acquisition of Ryder

Transportation located in the US by FirstGroup, the United Kingdoms largest public transportationcompany. They found that the success of this cross-border deal was due to FirstGroup having ampleprevious acquisition experience, strategic fit between the two businesses, cultural fit, successful post-acquisition integration, and maintaining a focus on the core business.

Furthermore, the authors argue that the degree of integration attempted is a very importantdecision. Based on the work of Hubbard (2001), they discuss four degrees of integration: totalautonomy, restructuring followed by financial controls, integration of main systems, and fullintegration. Deciding the degree of integration that is right for two particular firms depends on manyconsiderations. These include the international strategy of the parent firm, including whether it ispursuing a multi-domestic (different strategies is different countries) or global (same strategy world-wide), extent of strategic, cultural, and organizational compatibility.

In a very intriguing study Meschi and Metais (2006) found an inverted U-shaped relationshipbetween acquisition experience and acquisition performance. Their study, however, was based on 291French acquisitions of U.S. firms and thus may not be generalizable to other country combinations.


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The relationship suggests that firms benefit from learning up to a point and then beyond that sufferpossibly from overconfidence or hubris.

Another recent study (Quah and Young, 2002) examined four successful mergers by a U.S.automotive firm of firms in Germany, France, and Sweden. The target firms were not identified by

name but were referred to as German Security, French Security, Swedish Consultancy, and GermanAntenna. The study found that what made them successful was the use of a phased approach tointegration. In the first phase the acquirer makes few changes and instead worked to gain the trust ofthe acquired firms. This phrase usually lasted 1-2 years. In phrase two, the acquirer began a series ofchanges such as replacing the senior management of the acquired firm. This phase took place in years2-5. The sequential and progressive approach involved specific objectives for each phase while, at thesame time, being responsive the environmental changes. The objective of the first phase was to learnabout each other and to develop trust. Only then was the integration conducted.

Harzing (2002), in a study of 287 subsidiaries belonging to 104 firms during 1995-1996 foundthat firms following a multidomestic strategy were more likely to use a cross-border acquisition than agreenfield entry. Presumably this would make perfect sense because normally a subsidiary under a

multidomestic strategy would be more independent and less integrated with the parent. Thus pairingmultidomestic strategy and CB M&A suggests the role and importance of strategic fit.What about the business strategy of the acquirer and the acquired firm? Is there any research

suggesting that certain business strategies (e.g., differentiation, cost-leadership, focus) do better withCB M&A? Well yes there is a little. Morck and Yeung (1992) studied 332 acquisitions by U.S. firmsof foreign firms between 1978 and 1988. They found that the acquiring firms R&D intensity andadvertising intensity, likely to characterize a differentiation strategy, were associated with positivechanges in the acquirers valuation. Presumably this effect would be heightened in cases where thetarget firms industry valued differentiation.

Altunbas and Marques (2004) found that for cross-border European Union bank deals higherperformance was related to similarity for some firm chacteristics but to differences for others. Higherperformance was related to differences in loan and credit risk strategies. It was also related tosimilarities in capital, cost structure, technology, and innovation.

Finally, if we examine some of the well-know international mergers- such as Pharmacia-Upjohn, Cap Gemini-Ernst & Young, Chrysler-Mercedes- most of these had trouble because ofintegration problems. These particular mergers are interesting since they have been documented insome detail either in the business press or in academic journals. Of these, perhaps the biggest lessoncan be learned from the case of Pharmacia-Upjohn. After the merger ran into difficulty, a new CEOwith the right leadership approach and the right strategy turned it into a success.

What is the right CB M&A strategy? The research, though very limited to date, suggests thefitting together the following characteristics: corporate strategy of horizontal growth, an internationalstrategy allowing multi-domestic automony, matching business strategies involving highR&D/advertising intensity and complementary resources, using intense marketing aimed at theinternational business and investment community, and integrating the firms with a phased approachwhere the integration is aided by redeployment of resources between the target and the bidder. Muchmore research needs to be done, of course, but the focus should be on strategy rather on cross-borderacquisitions as a whole.

ConclusionCross-border mergers are frequently unsuccessful. However, care given to two elements seems toincrease the chance for success. The first is strategy. Though the research on exactly what the beststrategy actually is, is very limited, strategy does appear to matter. The second element that matters ispost-merger integration. Again though the research is limited as to what leads to superior integration,whether it is outside leadership, a phased approach, or something else, it also does seem to matter.More research in these areas needs to be done.


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