STUDY OF MERGERS AND ACQUISITIONS BY ANALYSING THE DEAL BETWEEN GEELY HOLDINGS AND VOLVO CARS
TABLE OF CONTENTS
TOC \o "1-4" \h \z \u 1.EXECUTIVE SUMMARY PAGEREF _Toc350291717 \h 22.INTRODUCTION PAGEREF _Toc350291718 \h 23.DESCRIPTION OF GEELY AND VOLVO AS INDIVIDUAL COMPANIES PAGEREF _Toc350291719 \h 33.1 Geely Holdings PAGEREF _Toc350291720 \h 33.2 Volvo Car Corporation PAGEREF _Toc350291721 \h 34.MOTIVATION FOR THE DEAL PAGEREF _Toc350291722 \h 35. ESSENTIAL TESTS PAGEREF _Toc350291723 \h 45.1 The attractiveness test PAGEREF _Toc350291724 \h 45.2 The Cost of Entry Test PAGEREF _Toc350291725 \h 55.3 The Better-Off Test PAGEREF _Toc350291726 \h 56. SYNERGY ANALYSIS PAGEREF _Toc350291727 \h 56.1 Management Synergy PAGEREF _Toc350291728 \h 56.2 Operating Synergy PAGEREF _Toc350291729 \h 66.3 Financial Synergy PAGEREF _Toc350291730 \h 67. AN ANALYSIS OF WHETHER TO ALLY OR ACQUIRE PAGEREF _Toc350291731 \h 6REFERENCES PAGEREF _Toc350291732 \h 7 EXECUTIVE SUMMARYOne of the most happening ways to expand and grow business in recent days is through Mergers or Acquisitions (M&A). It is the fastest way to grow in terms of market share/diversification and to enter new market that would not have been possible with any other choice of growing the business. This has been a frequently seen phenomenon in automobile industry ranging from Renault-Nissan Team up, Tata Motors-JLR merger to acquisition of Volvo by Geely. Strategic Mergers and Acquisitions focuses on the growth of the organization within the same industry or related/unrelated industry and affects the organization in terms of economies of scale, vertical integration (upstream or downstream) along the value chain of the industry, strong alliances and competitive advantage. One of the major motivations for M&A in automobile industry is to have the positive synergistic effect. This paper focuses on the study of this acquisition, because this is the first time in the automobile industry that any Chinese company had made any international acquisition with a significant value paid for the deal. For the analysis purpose, it will first analyse the automobile industry’s attractiveness. Then, it will analyse the corporate strategy of Geely Corporation and will test the conditions under which M&A will truly create shareholder value. For this purpose, this paper aims at analysing and examining the better off test, the attractiveness test and the cost-of-entry test for Geely Holdings. Then the deal will be analysed, i.e. whether to acquire or ally and did Geely do the right thing. INTRODUCTIONThe automobile industry in China is very active in recent times in terms of growth, especially through M&A. Through our study, we intend to analyse the value created due to the acquisition of Swedish Company Volvo Car Corporation by Zhejiang Geely Holdings Group, the synergy creation due to the acquisition in a strategic prospective, competitive environment, attractiveness of the deal and the corporate strategy of Geely Corporation. The organization should first clearly define the company’s growth and development strategy and should analyse the target company’s business segment and resources and whether the acquiring company can make use of these resources in general for its competitive advantage. Geely is a large private-sector company in China producing mainly vehicles and automobile parts whereas Volvo is among the top 20 largest automobile companies in the world which is known for its sophistication, quality, technology and performance. If we consider that Geely’s acquisition of Volvo is a successful one, then it should generate a positive synergy for the China’s global presence in automobile industry. With this in mind, Geely acquired Volvo with 100% equity stake in Volvo in August 2010. Due to the sheer size of Volvo, it has a large market capacity. But due to the 2008 global financial crisis, Volvo had to incur a massive loss due to management...
References: Caijing 2010. “What did Geely get from the acquisition of Volvo – There are three reasons according to Geely’s Chairman Li Shufu”. Renming Daily News
Financial Report of Geely Auto (Year 2009)
Financial Report of Volvo (Year 2009)
Michael E.Porter”How Competitive forces shape strategy”
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