Internatinal M&a

International M&A cases investigation

Case ўс: LENOVO Ltd. Co. purchased IBMЎЇs worldwide PC business.

On May 1st, 2005, LENOVO Ltd. Co., one of the most famous PC producers in China, declared officially to the whole world that it had successfully purchased IBMЎЇs worldwide PC business, including the business of Table computers and Laptops. The huge purchasing price amounted to 1.75 billion USD. However, whatЎЇs the most significant for LENOVO was that it would become the third largest PC producer all over the world and rank among the global Top 500 corporations with a consolidated yearly income of 12 billion USD.

Motives:

As the largest domestic PC producer in China, LENOVO had been developing fast and operated well since it was established in 1988. Not only it came into the stock market at Hong Kong United Securities House in 1994 and later became one of the largest PC producers in Asia but also developed a brand new computer, ÐŽoSHENTENG 6000ÐŽ±, which ranked 14 among the World Super Computer Announcement Board.

However, LENOVO realized what it achieved during these years was still not enough to compete with those top PC producers, such as DELL, HP, TOSHIBA and so on because its internationalization was just starting. In order to accelerate this process LENOVO had two ways to choose: one is self-development and the other is merger. But for Chinese corporations, it is still very difficult to choose the first approach because in the eyes of most foreign people, Chinese domestic corporations just imply low value, low cost and even poor quality so it is almost impossible if LENOVO want to set up a famous brand in this way. And therefore, it had to choose the way of merger, but the first thing was to select the very right and potential company. If LENOVO chose a small company with little fame, it would also encounter similar problems.

Just right the moment, IBM expected to rebuild its industrial structure. So LENOVO decided to catch this good chance and took advantage of IBMЎЇs great worldwide reputation to accelerate internationalization and establish its new global image so as to compete with other PC producers. In spite of the high risk, LENOVO still believed that purchasing IBMЎЇs PC business might be a very wise plan.

Strategies and Methods:

Through the analyses above, LENOVO took an effective ÐŽoReducing costs for expansionÐŽ± merger strategy because IBM desired to sell its PC business to gain more capital to transfer its business key point to study and produce computersЎЇ chips.

Furthermore, one of the most important things in the whole International M&A process will be sufficient capital supply, and LENOVO would have to pay a huge sum 1.75 billions USD for the transaction, consisting of 0.65 billion USD cash, 0.60 billion USD securities and 0.50 billion USD liability. For the securities part, LENOVO issued some new stocks to IBM besides transferred some other non-voting stocks. After the completion of merger, IBM hold 18.9% of LENOVO stock but the largest stockholder was still LENOVO, which hold 45% stock.

However, it would not be easy for LENOVO to get such a huge amount of cash in a short time so it had to turn to international monetary market for help. Finally, LENOVO financed 0.60 billion USD from 20 international commercial banks but it had to pay a much higher interest rate for this 5-year long-term loan. Meanwhile, LENOVO also raised 0.35 billion USD from three America Investment Companies - Texas Pacific Group, General Atlantic and New bridge Capital, which would hold 12.4% of LENOVO stock. Hopefully, these three investment companiesЎЇ deeds would conduce to more international investment for LENOVO. In a world, the financing strategies of LENOVO is the main and universal way of settling capital problem nowadays and those financing played a quite significant role in the M&A process.

Expected Outcome:

Through this international M&A, LENOVO had enlarged its PC market share and readjusted its internal management structure - the former IBM vice-president taking up the post of CEO of LENOVO. Moreover, although the main manufacture place is still in China, the head office would be set up in NY, USA and the total workers would be up to 1, 9000. It is conceivable that LENOVO was experiencing an extensive internationalization reform.

On the first side, it is undeniable that LENOVO will play a more important role in the PC production industry. Nevertheless, on the other side, we have to find out such a truth, that is IBMЎЇs PC business still has much deficit since 1994 so LENOVO might also have to face such a risk of being deficit if it could not sell more ÐŽoThinkPadÐŽ± IBM computers. Furthermore, LENOVO has to accept more IBM former workers, which will increase the costs to a great extent.

Some top PC Companies like DELL, HP and TOSHIBA expressed that they did not have much interest in purchasing such a PC business as IBMЎЇs, because they thought the costs were too high, especially for the PCЎЇs parts purchasing. Also, some financial institutions made a negative comment that only IBM earned profits because at last it got compensation for its bad PC business. However, since the internationalization and globalization are the main goal for LENOVO it is might be a new moment for its development. Just wait and see.

Case ўт: JP Morgan Chase Bank merged Bank One Corp.

On January 15th, 2004, JP Morgan Chase Bank and Bank One Corp. announced their combination. The total volume of trade was up to 58.76 billion USD, which was also the largest financial M&A program in the whole financial field. And according to the universal banksЎЇ rank published by British noted financial magazine, Banker, in 2004, JP Morgan Chase Bank placed a position of the third in US. After combination, it leaped to second, just behind the CITI Bank.

Motives:

The main motive for their combination was to realize the complementation of their business.

WhatЎЇs the strongest business for JP Morgan Chase bank was its investment bank business, mainly on the Hi-Tech Co. business and securities investment. However, the Hi-tech bubbles were evaporated, JP Morgan damaged severely and it had to seek for a new business to lower the companyЎЇs operation risks. And for Bank One Corp. it owned 1,800 service network points and its