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Chapter 15
Multinational Restructuring
Lecture Outline
Background on Multinational Restructuring
Trends in International Acquisitions
Model for Valuing a Foreign Target
Assessing Potential Acquisitions After the Asian Crisis
Assessing Potential Acquisitions in Europe

Factors that Affect the Expected Cash Flows of the Foreign Target Target-Specific Factors
Country-Specific Factors

Example of the Valuation Process
International Screening Process
Estimating the Target’s Value
Changes in Valuation Over Time

Why Valuations of a Target May Vary Among MNCs
Estimated Cash Flows of the Foreign Target
Exchange Rate Effects on the Funds Remitted
Required Return of Acquirer

Other Types of Multinational Restructuring
International Partial Acquisitions
International Acquisitions of Privatized Businesses
International Alliances
International Divestitures
Restructuring Decisions as Real Options
Call Option on Real Assets
Put Option on Real Assets

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International Financial Management

Chapter Theme
This chapter emphasizes that the strategic plan of an MNC can be modified continuously in response to changing global conditions, and multinational restructuring may be needed to achieve the plan. Some of the more critical issues related to multinational restructuring are discussed.

Topics to Stimulate Class Discussion
1. Why do MNCs consider multinational restructuring?
2. How should MNCs determine whether multinational restructuring is worthwhile? 3. What are common ways by which an MNC can conduct multinational restructuring? 4.

What role does valuation play in the multinational restructuring process?

POINT/COUNTER-POINT:
Can a Foreign Target Be Assessed Like Any Other Asset?
POINT: Yes. The value of a foreign target to an MNC is the present value of the future cash flows to the MNC. The process of estimating a foreign target’s value is the same as the process of estimating a machine’s value. A target has expected cash flows, which can be derived from information about previous cash flows.

COUNTER-POINT: No. A target’s behavior will change after it is acquired by an MNC. Its efficiency may change depending on the ability of the MNC to integrate the target with its own operations. The morale of the target employees could either improve or worsen after the acquisition, depending on the treatment by the acquirer. Thus, a proper estimate of cash flows generated by the target must consider the changes in the target due to the acquisition. WHO IS CORRECT? Use InfoTrac or some other search engine to learn more about this issue. Which argument do you support? Offer your own opinion on this issue. ANSWER: Some targets may continue their business in the same manner as before, and their cash flows may not change significantly. Others are restructured due to the acquisition, so their cash flows might deviate substantially from before the acquisition.

Answers to End of Chapter Questions
1. Motives for Restructuring. Why do you think MNCs continuously assess possible forms of multinational restructuring, such as foreign acquisitions or downsizing of a foreign subsidiary? ANSWER: MNCs continuously assess possible forms of multinational restructuring so that they can capitalize on changing economic, political, or industry conditions across countries. These conditions may present opportunities not available in the U.S. 2. Exposure to Country Regulations. Maude Inc., a U.S.-based MNC, has recently acquired a firm in Singapore. To eliminate inefficiencies, Maude downsized the target substantially, eliminating two-thirds of the workforce. Why might this action affect the regulations imposed on the

Chapter 15: Multinational Restructuring

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subsidiary's business by the Singapore government?
ANSWER: One of the benefits of direct foreign investment from a host government's viewpoint is the potential reduction of unemployment. If a U.S.-based MNC such as Maude contributes to...
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