Paragraph 2(20%): Introduce my answer to this question. M&A are by and large a wise decision, but blind ones, aimed at achieving a monopoly, are harmful. 

Paragraph 3(25%): Cite successful M&A cases and summarize the positive impact of successful M&A.

Paragraph 4(25%): Cite unsuccessful M&A cases and summarize the negative impact of successful M&A.

Paragraph 5(15%): Do Summarize. Compare the advantages and disadvantages of M&A, and point out how companies should avoid the disadvantages brought about by M&A.

Justifications For Acquisitions   Page 361

The case against acquisition     Page 365   

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Mergers and acquisitions of companies have many advantages. First, corporate M&A allows companies to expand their scale, broaden their influence and demonstrate their strong strength. Secondly, corporate M&A can expand a business, attract more consumers and increase profitability. Finally, M&A makes multinational corporations possible, which is necessary for the process of globalization. 

 

In recent years, there have been many Chinese companies that have complemented each other and maximized their returns through mergers and acquisitions. The merger of CSR and CNR to form CRRC will be cited here as an example.

 

CSR and CNR were originally two large rail transportation equipment manufacturers in China, which were spun off from China Railway Rolling Stock Industry Corporation under the former Ministry of Railways and led by a department under the State Council. CSR was established on December 28, 2007, mainly engaged in the design and manufacture of urban rail vehicles and railroad rolling stock; CNR was established on June 26, 2008, mainly engaged in the research and development of urban rail vehicles, and railroad rolling stock and engineering machinery and electronics. China CNR was formed by the merger of China South Locomotive Company Limited (CSR) and China North Locomotive Company Limited (CNR), which was officially established on June 1, 2015. 

 

The merger of the two companies has had a hugely beneficial impact. Before the merger, CSR, CSR, Bombardier, Siemens, and Alstom ranked 1st to 5th in the global rail transportation equipment market share, while after the merger of the two enterprises, CRRC's cumulative sales revenue exceeded the other 4 and became the world's largest rail transportation manufacturer with much higher competitiveness. Meanwhile, since CRRC fully inherited the assets of the two enterprises, after the merger, CRRC's total assets exceeded 300 billion yuan and its operating revenue in 2015 exceeded 250 billion yuan. The company's assets and scale of operations have become the top industrial manufacturing company in the world, second only to Boeing. In terms of technology, CNR and CSR, as representatives of China's high-speed railway technology, have gathered much professional and technical personnel. The merger of the two enterprises can break the technical barriers and better improve the manufacturing power and innovation of Chinese rail transportation manufacturing enterprises. Finally, the merger of the two companies also has an impact on the original market share and improves the competitiveness in the international market. In China, the combined company has become the largest rail equipment manufacturer, with a market share of over 95%. In the international market, CRRC's market share exceeds that of any other rail equipment manufacturer, and its share in the international market is greatly increased. With its high market share and the call for the "One Belt, One Road" policy of the Chinese government, CRRC has successfully developed many developing countries' markets under its corporate volume, which has increased its international influence and generated further revenue for the company.

 

At the same time, there are inevitable drawbacks to M&A. Blind M&A and expansion can make the organization too redundant and bloated in size. Secondly, endless M&A can led to business disruption and a large span of industries. Finally, mergers and acquisitions may carry credit risk, resulting in a company's financial and credit ratings being affected.

 

The Vivendi Group was founded in 1853, more than 150 years ago. Formerly known as General Water France Ltd, the company is the largest water treatment company in the world, with more than 10 million customers in more than 100 countries, providing 4 trillion liters of drinking water per year. The company generates 30% of its turnover from industrial water treatment, has annual net sales of $12 billion, and employs 67,000 people. In addition, Vivendi is also affiliated with Onyx, the third-largest full-service waste treatment company in the world and the first in Europe, Connex, the number one private transport operator in Europe, and Dalkia Group, the number one energy company in Europe.

 

In addition to public utilities such as water, waste, transportation, and energy, Vivendi is the second largest network group in the world after Warner Media. In 1994, the company's CEO changed, and the new CEO decided to enter the telecom, internet, entertainment, and media industries. in 1996, Vivendi bought several publishing houses, music companies, communications companies, and the famous cable company Canal Plus in France, and then began to expand abroad. In January 2000, Vivendi and Vodafone, the world's largest cell phone group at the time, announced a joint venture agreement to "build the largest network company in Europe. In June 2000, Vivendi acquired Seagram Canada and its Universal Pictures and Polygram music divisions for US$3.4 billion, and in 2001 acquired the film and television assets of USA Network for US$10.3 billion, giving Vivendi's channels a strong content backbone. In the years that followed, the Vivendi Universal Group became the number one media group in Europe and the second largest in the world because of its successive acquisitions. Its total revenues in 2001 amounted to more than 58 billion euros, nearly half of which came from its media and telecommunications businesses.

 

But Vivendi's acquisition process was blind. For example, Vivendi Universal bought the film and television business of USA Network for $10.3 billion, when the company had a market capitalization of $4.7 billion. The massive acquisition allowed Vivendi to accumulate heavy debt. According to its results for the first half of 2002, the company's total debt amounted to 35 billion euros. As it turned out, the assets acquired with huge loans did not generate the expected revenues. First, the traditional companies acquired by Vivendi had limited influence, and the TV stations acquired by the company in the United States were hardly comparable to FOX and ABC. Second, Vivendi's network business was severely damaged. Vivendi Universal Networks lost 301 million euros in 2001 and 103 million euros in the first half of 2002. Finally, after many acquisitions, Vivendi did not effectively integrate its resources. On July 1, 2002, the famous rating agency Moody downgraded Vivendi's long-term credit rating from Baa3 to Ba1. The following day, the French media revealed that Vivendi was suspected of falsifying its accounts and that the market value of its shares shrank by one-third within three days, triggering a full-scale crisis for the Vivendi Global Group. The next day, the French media revealed that Vivendi had allegedly falsified its accounts and its shares lost a third of their market value within three days, triggering a full-scale crisis for Vivendi Global.

 

By comparing CRRC and Vivendi, it can be concluded that most of the M&As are beneficial to the company and most of the failed M&As are due to the lack of adequate consideration of the arrangement and blindly proceeding with the M&A. To accomplish a successful M&A, companies should focus their goals on their long-term development instead of focusing only on the short-term benefits gained from financing and speculation in the secondary stock market. At present, many mergers and acquisitions are non-substantial and aim at short-term profits without essentially improving the value of the acquired company. (Zaks, Polowczyk and Trąpczyński, 2018) Although such mergers and acquisitions may be profitable in the short term and thus improve the company's performance, they will not only cause damage to the company's value credit in the long term but also increase the risk of being acquired itself. Therefore, enterprises should be clear that the goal of M&A is to enhance their core competitiveness and achieve sustainable development.

 

In conclusion, there are advantages and disadvantages to M&A. For most companies, mergers and acquisitions are largely beneficial. And by understanding Vivendi's M&A experience, it can also be concluded that blind M&A can be a great hidden danger to the business operation. Finally, in conclusion, since the purpose of M&A is to achieve sustainable development, companies need to pay more attention to long-term benefits when conducting M&A. 

 

 

 

 

 

 

 

 

 

 

Arnold, G. and Lewis, D.S. (2019). Corporate Financial Management. 6th ed. Harlow, England ; New York: Pearson Education Limited, p.865.

Hillier, D., Ross, S.A., Westerfield, R., Jaffe, J.F. and Jordan, B.D. (2021). Corporate finance. 4th ed. New York: Mcgraw-Hill Education, p.360.

Zaks, O., Polowczyk, J. and Trąpczyński, P. (2018). Success Factors of Start-Up Acquisitions: Evidence from Israel. Entrepreneurial Business and Economics Review, 6(2), pp.201–216. doi:10.15678/eber.2018.060211.

 

M&A generally refers to mergers and acquisitions. Mergers, also known as absorption mergers, are two or more independent businesses that merge to form one business, usually by a dominant company absorbing one or more companies. (Arnold and Lewis, 2019, p.865) An acquisition is the purchase of stock or assets of one firm for cash or marketable securities to gain ownership or control of all or a particular asset of the firm. Intercompany mergers and acquisitions are one of the most important ways of modern corporate capital operations, a means of achieving capital expansion and business development by transferring ownership or control of a company. (Hillier et al., 2021, p.360) Some people think that M&A is bad for companies. At the same time, some believe that M&A is good for the company. M&A is to a large extent beneficial, but only if the decision-maker considers the situation and makes an informed choice. This essay will discuss the pros and cons of M&A, cite successful and unsuccessful M&A cases, discuss why M&A is largely beneficial, and finally, how to make well-considered and sound M&A decisions.

 

There are many advantages to a company's merger and acquisition. First, corporate mergers and acquisitions allow companies to expand their scale, broaden their reach, and demonstrate strong capabilities. Secondly, M&A of companies can expand their business, increase profitability and attract more consumers. In addition, M&A between companies can break the technological barriers and achieve technological complementarity, which can greatly improve the technological level and R&D capability and further improve the competitiveness of companies. Finally, while M&A makes a company stronger, it also increases the company's influence in the world. This has an important role in developing the company's global business and gradually moving towards the global operation.

 

The merger of CSR and CNR to form CRRC will be cited here as an example. The merger of the two companies has had a hugely beneficial impact. Before the merger, CSR, CSR, Bombardier, Siemens, and Alstom ranked 1st to 5th in the global rail transportation equipment market share, while after the merger of the two enterprises, CRRC's cumulative sales revenue exceeded the other 4 and became the world's largest rail transportation manufacturer with much higher competitiveness. Meanwhile, since CRRC fully inherited the assets of the two enterprises, after the merger, CRRC's total assets exceeded 300 billion yuan and its operating revenue in 2015 exceeded 250 billion yuan. The company's assets and scale of operations have become the top industrial manufacturing company in the world, second only to Boeing. In terms of technology, CNR and CSR, as representatives of China's high-speed railway technology, have gathered much professional and technical personnel. The merger of the two enterprises can break the technical barriers and better improve the manufacturing power and innovation of Chinese rail transportation manufacturing enterprises. Finally, the merger of the two companies also has an impact on the original market share and improves the competitiveness in the international market. In China, the combined company has become the largest rail equipment manufacturer, with a market share of over 95%. In the international market, CRRC's market share exceeds that of any other rail equipment manufacturer, and its share in the international market is greatly increased. With its high market share and the call for the "One Belt, One Road" policy of the Chinese government, CRRC has successfully developed many developing countries' markets under its corporate volume, which has increased its international influence and generated further revenue for the company.

 

At the same time, there are inevitable drawbacks to M&A. Blind acquisitions and expansion can make the organization too redundant and oversized, making it more difficult to manage the company and causing each department to fail to perform its function properly. Secondly, endless mergers and acquisitions can also lead to excessive changes in a company's business, making it difficult for the original main business to operate properly and eventually losing its competitiveness within that industry. Finally, mergers and acquisitions may pose a credit risk, resulting in an impact on the company's financial and credit ratings. This would significantly affect the company's rating among investors and the market, which in turn would affect the company's share price and market capitalization, with a significant impact on the company.

 

The Vivendi Group was founded in 1853, more than 150 years ago. Formerly known as General Water France Ltd, the company is the largest water treatment company in the world, with more than 10 million customers in more than 100 countries, providing 4 trillion liters of drinking water per year. The company generates 30% of its turnover from industrial water treatment, has annual net sales of $12 billion, and employs 67,000 people. In addition, Vivendi is also affiliated with Onyx, the third-largest full-service waste treatment company in the world and the first in Europe, Connex, the number one private transport operator in Europe, and Dalkia Group, the number one energy company in Europe.

 

In addition to public utilities such as water, waste, transportation, and energy, Vivendi is the second largest network group in the world after Warner Media. In 1994, the company's CEO changed, and the new CEO decided to enter the telecom, internet, entertainment, and media industries. in 1996, Vivendi bought several publishing houses, music companies, communications companies, and the famous cable company Canal Plus in France, and then began to expand abroad. In January 2000, Vivendi and Vodafone, the world's largest cell phone group at the time, announced a joint venture agreement to "build the largest network company in Europe. In June 2000, Vivendi acquired Seagram Canada and its Universal Pictures and Polygram music divisions for US$3.4 billion, and in 2001 acquired the film and television assets of USA Network for US$10.3 billion, giving Vivendi's channels a strong content backbone. In the years that followed, the Vivendi Universal Group became the number one media group in Europe and the second-largest in the world because of its successive acquisitions. Its total revenues in 2001 amounted to more than 58 billion euros, nearly half of which came from its media and telecommunications businesses.

 

But Vivendi's acquisition process was blind. For example, Vivendi Universal bought the film and television business of USA Network for $10.3 billion, when the company had a market capitalization of $4.7 billion. The massive acquisition allowed Vivendi to accumulate heavy debt. According to its results for the first half of 2002, the company's total debt amounted to 35 billion euros. As it turned out, the assets acquired with huge loans did not generate the expected revenues. First, the traditional companies acquired by Vivendi had limited influence, and the TV stations acquired by the company in the United States were hardly comparable to FOX and ABC. Second, Vivendi's network business was severely damaged. Vivendi Universal Networks lost 301 million euros in 2001 and 103 million euros in the first half of 2002. Finally, after many acquisitions, Vivendi did not effectively integrate its resources. The famous rating agency Moody downgraded Vivendi's long-term credit rating from Baa3 to Ba1. Then the French media revealed that Vivendi was suspected of falsifying its accounts and that the market value of its shares shrank by one-third within three days, triggering a full-scale crisis for the Vivendi Global Group. 

 

Despite these disadvantages, the advantages of M&A outweigh the disadvantages. Mergers and acquisitions can lead to companies that are too large and difficult to manage, and they can also lead to companies that have operational problems that can lead to lower credit ratings. But these problems can be avoided. By analyzing CRRC and Vivendi, it can be concluded that most of the M&As are beneficial to the company and most of the failed M&As are due to the lack of adequate consideration of the arrangement and blindly proceeding with the M&A. To accomplish a successful M&A, companies should focus their goals on their long-term development instead of focusing only on the short-term benefits gained from financing and speculation in the secondary stock market. At present, many mergers and acquisitions are non-substantial and aim at short-term profits without essentially improving the value of the acquired company. (Zaks, Polowczyk and Trąpczyński, 2018) Although such mergers and acquisitions may be profitable in the short term and thus improve the company's performance, they will not only cause damage to the company's value credit in the long term but also increase the risk of being acquired itself. Therefore, enterprises should be clear that the goal of M&A is to enhance their core competitiveness and achieve sustainable development.

 

In conclusion, there are advantages and disadvantages to M&A. For most companies, mergers and acquisitions are largely beneficial. And by understanding Vivendi's M&A experience, it can also be concluded that blind M&A can be a great hidden danger to the business operation. Finally, in conclusion, since the purpose of M&A is to achieve sustainable development, companies need to pay more attention to long-term benefits when conducting M&A.  

 

 

 

 

 

 

 

 

 

 

 

 

Arnold, G. and Lewis, D.S. (2019). Corporate Financial Management. 6th ed. Harlow, England ; New York: Pearson Education Limited, p.865.

 

Hillier, D., Ross, S.A., Westerfield, R., Jaffe, J.F. and Jordan, B.D. (2021). Corporate finance. 4th ed. New York: Mcgraw-Hill Education, p.360.

 

Zaks, O., Polowczyk, J. and Trąpczyński, P. (2018). Success Factors of Start-Up Acquisitions: Evidence from Israel. Entrepreneurial Business and Economics Review, 6(2), pp.201–216. doi:10.15678/eber.2018.060211.