Source: E-mail dt.
19.10.2011
The execution
of mergers and acquisitions as a strategy for Mexican companies within the
growth achievement in major world rankings
José G.
Vargas-Hernández, M.B.A;Ph.D.
Profesor Investigador miembro del Sistema
Nacional de Investigadores
Departamento de Mercadotecnia y Negocios Internacionales
Centro Universitario de Ciencias Económico Administrativas Universidad de
Guadalajara. Periférico Norte 799 Edificio G-306
Zapopan, Jalisco C.P. 45100; México
Mohammad
Reza Noruzi, EMBA, PhD Candidate
Public Administration, Policy
Making in Public Sector
Islamic
Young Researchers Club
Member, IAU
Summary
Mergers and Acquisitions, M & As has become
a trend for the growth of Mexican companies. Although the diverse, all
companies seeking the ultimate goal of growth of the firm. Through the job
description in the three largest companies in Mexico and the results we
achieved demonstrate the profitability of this kind of strategic alliances and
detected elements which may be useful for growing companies that are selecting
the appropriate strategy to their resources and goals. This article aims to
describe the execution of mergers and acquisitions as a strategy for Mexican
companies best positioned within the major world rankings to achieve growth.
The corporate strategy is critical to achieving the higher rank and must be set
out clearly and according to their needs.
Keywords: Corporate Strategy,
Mergers and Acquisitions, Mexican leader.
Jel: L19, M10.
Introduction
Companies must give direction to the resources.
They have to change their environment and absorb uncertainty in order to
maximize their profits. There are different perspectives and strategy firms,
according to their particular situation and the area of interference, they use
one that most suits of them.
The strategies of Mexican companies tend to
focus on the use of resources and capabilities to generate profit. But the
results obtained by some of the strongest Mexican worldwide companies are the
result of market development and practice of M & A, which are mostly
related to areas of its core business.
There is no universal strategy that works for
all organizations and generates the best profits. company must also assess
favorable and unfavorable conditions for implementation and most importantly,
act on that strategy which is most appropriate and effective company in the
search to achieve their goals.
There are a number of multinational companies
originating from emerging economies, but there are few that generate a level of
utility comparable to large multinationals in the developed economies.
Theoretical Framework
Strategic management is responsible for
developing the knowledge in this era. From the study of the actions taken by
companies for their growth and measuring the results obtained with the different
perspectives that have been consolidated. From this we find that the
organizational structure is the foundation for large businesses to achieve
their goals, but there must be a record in its efforts to continue to achieve
its objectives through the implementation of its corporate philosophy in the
various processes that are performed. Corporate behavior is what really makes a
company great and make it successful and internationally recognized.
We must understand the nature of the signatures;
leaving conceive as seeing them as productive functions and structures of
governance, in which economic goals are internal structures (Williamson, 2000).
In pursuit of creating value firms have turned to new business models that have
changed schemes and developed new strategic options, both in their local
markets as its internationalization, strategic alliances are voluntary
arrangements between firms to exchange or jointly develop products, technology
or services are increasingly common, and the problem for those responsible for
making decisions is to establish the appropriate changes to their specific
structures.
The key is that organizations seeking returns
must have a good understanding of the resources they acquire to maximize their
profits. In recent years, emerging economies have reached a considerable level
of development, foreign investment has greatly facilitated the growth of these
economies through the strategies and policies have been established (Wright,
2005), not only as host economies capital but also through numerous
international investment that you make on other economies around the world.
Strategic alliances are an alternative to the
growth of organizations whether we speak of contractual alliances in which by
signing a contract two of the undertakings, specific projects, joint marketing,
research and development contracts or licenses and franchises. Or question of
alliances based on the exchange of capital through: joint ventures, mergers or
acquisitions. According to the desired degree of integration with the other
hand, have the resources and reach goals they had set the strategy, the
selection will depend on the type of alliance. With special emphasis on
understanding the rules of the game on the market in which you want to venture
and an analysis of the advantages and scope to be the alliance (Peng, 2006).
The goal of all business decisions is the
highest possible value creation, and here you can establish whether a strategic
decision, as it can be an alliance based in the capital, has the right
motivation. The rationale for mergers and acquisitions (M & A) is that they
must create the new company in the case of mergers or the signing buyer in the
case of acquisitions, has a value greater than the sum of values that
had the signatures independently before integration (Herrera Avendaño, 2001).
Some companies in Latin America (LA) have
achieved little by little making its global market space, including several
Mexican companies also achieved success at national level, also found in
international markets through growth opportunities F & A, both public and
parastatal companies in different countries.
According to the ranking of the magazine América
Economía, of the 500 most important companies in
Some of the major companies that lead this list
have made F & A of other companies and this could be a cause
of increased participation in international markets and their stay in the
charts. There are several reasons to consider before establishing a strategy of
this kind, although sometimes the reasons do not seem logical, the view of
strategists usually yield good fruit in the medium term. Among the main reasons
we can mention the interest of achieving increased revenues, reduced costs,
gaining market power, integration with specialized companies in areas where the
other is weak, eliminating a competitor, getting a raise certain types of
resources, improving yields through new management, achieve tax benefits or a
combination of resources to increase productivity (Mascarenhas, 2006).
In late 2009 and early 2010 the major Mexican
companies dedicated to consolidate and integrate into their organization the
various F & A conducted in early 2009, the global economic crisis affected
the growth of companies, but most knew how to deal with the situation and move
forward to consolidate their resources. The strategy not only carried out in its
own lines of business but also the incursion into areas outside their main
economic activities. but in some way help them make a profit. A clear example
of this was the purchase of 17% of the New York Times by the billionaire Carlos
Slim, who despite having businesses in different economic sectors had not yet
ventured in press (Buchanan, 2010).
In that sense, M & A has become a trend for
the growth of Mexican companies, although this was not the only alternative
strategy carried out by the firm and sometimes the companies selected were not
the most appropriate in most cases we can see increases for firms that make us
assume the effectiveness of F & A. Regardless of the reason that companies
choose to implement this strategy, the results should be beneficial and be
oriented growth of the firm considering the organizational team, without affecting
the innovation and not follow the trend to acquire by purchase.
Objective
Based on the foregoing, setting a goal to
describe the execution of mergers and acquisitions as a strategy for Mexican
companies best positioned within the major world rankings to achieve growth.
Mexican companies seeking development and media can find items for their own
consolidation in the markets.
Of which raised the hypothesis of whether the
major Mexican companies in their strategies have made M & A,
if these have been within its sector and if they got support their growth.
Methodology
The methodology developed will be first the
selection and justification of Mexican companies which made the
descriptive analysis of the implementation of F & A from determining what
is your current place in the world rankings?, This analysis pointed out aspects
main and a brief description of the strategy developed for each of the selected
companies responding to the questions of what strategies are being implemented
for growth? And what are the benefits of M & A? then be presented general
findings of the strategies carried out, based on what is the level of income
and productivity achieved?, and finally identify elements to be considered by
other organizations choice of M & A value creation and growth of their
firms.
Selection and justification of Mexican companies
Different worldwide rankings to recognize the
largest companies in the world by their level of income, profit margins,
production capacities and other factors significantly outweigh the other
organizations worldwide. Two of the most internationally recognized tabs are
the FORBES and FORTUNE magazine, and journal Economics in
From 2009 to date has remained constant the
number of Mexican companies (18) in the 2000 world leading companies (Forbes
Staff, 2011), while ranking in the magazine America Economia in a period of
only seven years, from 2002 to 2009, the number of Mexican companies within the
first 500 in TO 50% down (América Economía, 2010). From this we can conclude
that a small number of Mexican organizations have consolidated their presence
in international markets while other smaller companies have lost its position
in international markets and their productivity has decreased significantly.
Moreover, when analyzing the situation of
Brazilian companies, whose country was compared to
Mexican companies included in Forbes' list of
2011 are shown in Table 1, among which are America Movil (# 88), Femsa (# 406)
and Grupo
Business Analysis
Below is a description of the situation of EML
and a narrative of the main strategies of F & A who have developed,
starting with the corporate Grupo
Grupo
Utilities 2010: 1.800 million dollars
Director: Larrea.
National companies that comprise: Minera Mexico,
Southern Copper Corporation, Ferromex, Ferrosur, Intermodal, PEMSA,
International companies owned: Americas Mining
Corporation and ASARCO.
Grupo
Mexico Construction Company was the first of
this group, created in 1942 soon becoming one of the main building of the
country. For the year 1965, acquired 49% of ASARCO is a mining company based in
In 1997 buys 24% share of Union Miniere Acec the
Cananea mine, and that same year, Grupo Mexico (74%) with ICA (13%) and
Union-Pacific (13%) take on the granting of various lines of rail, creating the
subsidiary Ferrocarril Mexicano purchase SA de CV (Ferromex). Soon
Union-Pacific acquired the part of
Grupo
During the period from 2006 to 2010 the company
went through a process of restructuring and reorganization of its business
units and assets, channeling their income primarily in the modernization
process, both in the extraction of minerals such as administrative control.
FEMSA
Utilities 2010: 3.300
MDD.
Director: José Antonio
Fernández.
Companies that integrate national: Coca-Cola
FEMSA and OXXO.
International companies owned: Heineken (20%).
FEMSA is a leading company engaged in the
beverage industry, through Coca-Cola FEMSA, the largest independent bottler of
Coca-Cola products in the world with presence in 9 countries of LA, is also
involved in trade, operating OXXO chain of convenience stores larger (8.621
stores) and fastest growing in AL with facilities in Mexico and Colombia, and
participates in the sale of beer, the second largest shareholder of Heineken,
one of the leading brewers in the world with presence in over 70 countries.
(Femsa, 2011)
Each business unit has this interesting aspect
of corporate analysis, but in this article we only focus on the strategies
undertaken by each of them in their process of growth through M & A.
OXXO opened a daily average
of 3 stores in Mexico during 2010, the same year began operations in Colombia
and now has eight stores, the company has a large potential for growth in the
region, and all of its growth strategy has been made based on
resources the firm already operates as a franchise that has not carried out and
F & A to boost growth.
Coca-Cola FEMSA's bottler in Mexico that
is born of the acquisition of the franchise in the year 1979, distributing its
products in much of the country, in 1994 acquired 51% of the shares of
Coca-Cola in Buenos Aires, Argentina and in 2002 announced the acquisition of
Panamco, the largest bottler of AL at the time, from this point the company's
growth was substantial and that the acquisition was another part of the
territory of Mexico, the countries of Costa Rica, Colombia, Guatemala,
Nicaragua, Panama and Venezuela, and some regions of Brazil, becoming the
leader of al-bottling company.
The company decided to follow the line of drinks
and when it was believed that the soft drink market share would be enough, the
company surprised in 2007 with the acquisition of Jugos del Valle in Mexico and
Brazil REMIL bottling in 2008, it grew participation in the Brazilian market, together
with Mexico are the most attractive markets in Latin America.
Not all acquisitions must be of large
international companies and the purchase in 2008 of the Water Company of
Angels,
Beer is the oldest business
unit of the company and its history goes back to its founding in 1890 under the
name of Cerveceria Cuauhtemoc Mexico, will later be established firms that were
born as part of domestic production of inputs in brewery that later would
become self-sufficient and independent companies, which contribute in making
the bottles, labels and bottle caps necessary for packaging beer.
In 1985 a merger between two of the largest
breweries in Mexico, Cerveceria Cuauhtemoc Cerveceria Moctezuma, a case that
serves to show that the strategy of M & A has been several years a good
option for growing firms, with the merger the company not only expanded its
product offering to the market and therefore they also managed to increase
their participation. In 1994, partners with the Canadian brewer John Labatt
Ltd., which buys 30% stake in the brewery and thus the company gets an increase
in its share capital to tackle the country's economic crisis. Later in 2004 the
share repurchase was sold to begin its expansion strategy internationally which
shows us a clear example that M & A does not always mean total loss of
corporate control and in many cases are a source of impetus for the development
of the organization.
That same year, implement a trade agreement with
Heineken to distribute the products in the
It was in 2006 when the firm makes first
acquisition in its history the purchase of Brazilian brewer Kaiser, acquiring
68% of the shares and thus operate in two Latin American markets more
attractive. In what was a considerable increase in revenue and a commercial
boost with greater market share, through which has been pushing their products
through the extensive distribution network operates.
The consolidation of Cervecería Cuauhtémoc
Moctezuma led the company Heineken, who already owned the U.S. distribution,
acquired in 2010 for signature by the exchange of 100% of its operations by 20%
of the shares of Heineken, this acquisition was a of the most important of the
year with the sale of the company FEMSA Brewery will focus more on growing its
other business units (OXXO and Coca-Cola FEMSA) and participate in the
administrative council of Heineken to care for the performance of the firm .
America Movil
Utilities 2010: 7.300
MDD.
Director: Carlos Slim.
National companies that comprise: Telcel and
Telmex.
International companies
of their property: Telmex Internacional, Claro (15 countries: Argentina,
Brazil, Chile, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Nicaragua,
Panama, Paraguay, Peru, Puerto Rico, Dominican Republic and Uruguay) Comcel
(Colombia), Embratel (Brazil), Net (Brazil) and Tracfone (USA).
America Movil is not only a leader in the mobile
telecommunications sector in
Through the acquisition of several public
companies and parastatals telephony has been consolidating its presence in the
principal in the cell phone. Your participation in the cellular market in
Mexico is 71%, 33% in Central America, Caribbean 43% and 9 countries in which
it operates in South America all have a stake greater than 30% except for Chile
where their participation is barely 22%. (
"The acquisition by America Movil of its
parent company, Carso Global Telecom (which controls Telefonos de Mexico or
Telmex and Telmex International) was by far the largest merger in
America Movil was born in 2001 when it separated
from fixed telephony company TELMEX, and nine years of his division is now the
purchaser of the company that was born, the case of telecommunications
companies of Mr. Carlos Slim is full of examples successful mergers and
acquisitions for 20 years in which through its consortium of Southwestern Bell Telecom
acquired the state-owned Telmex, while in turn the company America Movil was
acquiring various telephone companies in Latin America and step to form the
signature course, trade name under which it operates in most countries.
The acquisition by America Movil of its sister
companies Telmex and Carso Global Telecom International, will report that in
2010 represented 211.3 million wireless subscribers, 27.4 million fixed lines,
12 million fixed broadband connections and 8.6 million TV subscribers . The company
also reported an outstanding financial performance with net profits rising
contrary to its main rival Telefonica in the last year reported a decline in
profits. (Datamonitor, 2010)
America Movil continues its strategy of M &
A in LA countries, and the proof is the recent purchase of the company Digicel
in early 2011 who operated in
The current government in
The growth in demand for bandwidth and pay TV in
Latin means the sustained growth of the company, which only have to overcome
institutional constraints to maximize their profits, and even in this sense the
strategy of mergers that has been done will be useful to market their services
in countries like Brazil with barriers of entry into foreign ownership of
telecom case for which the company has decided to increase its share of Net
through its subsidiary Embratel.
Effectiveness of Mergers and Acquisitions
The purchase of Asarco in 1956 makes clear that
the use of M & A as a means for the development of the company is not a
strategy that just being started, and is an example of the vision they have had
the EML for several years .
M & As has become steadily more present and
in the last 15 years has increased the tendency of local firms to make such
alliances. Even in areas other than the main economic activity of the company,
either in activities that have a relationship, as in the case of Grupo Mexico,
which through Ferromex rail networks can transport material from mines ( Mascarenhas,
2006), or in activities that are not related to its activity as for the
purchase of Slim a percentage of the New York Times commented in the
introduction to this article.
In the latest merger by Grupo
In the case of Grupo Mexico is clear that,
thanks to M & A can gain access to the resources that became the second
company with the largest copper reserve on the planet, which could hardly have
been achieved through other means, but we can not downplay made to other
strategies, mainly in the processes of restructuring, as though in recent years
has not made any acquisition revenues and profits increased
significantly in the last year.
At Coca-Cola FEMSA's strategic alliances have
been crucial since its inception through the acquisition of the concession for
the distribution of Coca-Cola. Its main thrust of internationalization has been
achieved through acquisitions, Coca-Cola first in
Even in small markets an acquisition may
represent a source of consolidation as the example of Los Angeles Water, or can
also serve to diversify and increase the product line as was the case with the
purchase of Del Valle and Dairy Industries Group.
The area brewery is not very different from
Coca-Cola FEMSA and in this area we also find that growth has been sustained in
practice M & A throughout its history, from the merger of Cervecería Cuauhtémoc
Moctezuma Brewery to reduce and production costs and gain greater power in the
domestic market, to then develop a series of agreements to distribute its
products with different breweries worldwide in order to internationalize their
brand, After Kaiser bought the company I represent an increase in AL.
Increased participation in
The case of FEMSA shows that even within the
same firm strategies in its business units are not the same and although M
& A have been an important factor for the growth of its operations in two
business units to OXXO have not been the growth medium, although this does not
mean that if done would not succeed, perhaps for future growth would be
predicted to get OXXO in the event that made M & A.
Although revenues declined FEMSA in the last
year, as expected mainly by revenues from brewery failed to receive after the
sale the profits and assets which increased due to continued growth, a result
of their internationalization in its other two business units (Forbes Staff,
2011).
The company America Movil was from the beginning a successful business and
began growing by leaps and bounds through the voracious acquisition of a large
number of telephone companies in different markets of LA, which gradually
consolidated their position as the company the continent's leading mobile
growth projections and a substantial number of customers. But the determining
factor of growth in recent years did so by buying the company Carso Global
Telecom, which despite being the same owner does not mean you should not have
the resources to acquire and thus establish his position far above its
competitors (Agree, 2011).
With this acquisition the company managed to improve performance through new
management and increased productivity through shared resources. In the case of
the Brazilian market we find that M & A conducted achieved integration of
telephone and television companies, achieving also prevent the entry barriers
to foreign companies on television. A through M & A company America Movil
has gained access to markets, competitors and has been removed has increased
its presence in Latin by the large number of mobile phone users.
America Movil has income greater than twice
those of FEMSA and Grupo
Conclusions
The EML has consolidated its place in the main
rankings because of its strategic vision and outstanding performance compared
to other firms, and their efforts are recognized worldwide, as mentioned in the
beginning of this article are not unique strategies to achieve growth companies
and many alternative firms, who based their resources attempting to find the
most suitable for their own development.
In the analysis of companies is stated that M
& A is a common strategy in organizations despite being of sectors and
business activities very different, it is clear the importance that has
occurred in recent years this type of strategic alliance as EML all have used
at some stage as a means to grow and achieve their goals. Because of the
variety among the reasons companies have obviously not been the same since we
find cases that look from reduced costs and increased resources to improving
the management and reduction of entry barriers, although to the above if it can
be concluded that the implementation of the strategy has a tendency among the
EML to be used to facilitate the internationalization of the firm and meets
expectations in this regard as an effective tool in the process of incursion
into new markets.
Growing companies need to analyze M & A as
an attractive option for growth, regardless of the sector where they are and
whatever economic activity they perform, trying to combine this strategy with
others to maximize the performance of the firm as as mentioned from the
beginning, no strategy is complete and the best results are obtained from the
right combination. Using this type of partnership should be done by companies
with an average degree of maturity and sufficient resources to operate
efficiently to the party who performed the alliance, because otherwise result
in detriment to the benefit of the parties involved.
References
Agree, D. (2011). Slim and
America Movil made waves in 2010. Latin
Trade (Spanish), 19 (1), 54-56.
América
Economía. (2010). America
Economia magazine. Retrieved May 13, 2011, of the
indisputable leadership of
Buchanan, R. (2010).
Datamonitor. (2010). America Movil, SA de CV SWOT Analysis.
Femsa. (2011). Retrieved
May 16, 2011, from www.femsa.com
Forbes Staff. (April 20, 2011). Forbes. Retrieved May 2011, www.forbes.com
Grupo
Herrera Avendaño, CE (2001). Business Combinations and Restructuring.
Hewlett Packard Development Company. (2011). Coca-Cola FEMSA Signs $ 100 Million Technology
Services Agreement with HP to Support Growth. Business Wire.
Mascarenhas, J. (2006). Mergers
and Acquisitions (Fourth ed.).
Peng, MW (2006). Global Strategy.
Williamson, OE (2000). The
New Intitutional Economics: Taking Stock, Looking Ahead. Journal of Economic Literature,
38 (3), 595-613.
Wright, MI (2005). Strategy
in Emerging Economies research: Challenging conventional wisdom. Journal
of Management Studies, 42, 1-33.
Appendix
Tabels
|
RANKING |
||
|
1 |
América Móvil |
88 |
|
2 |
Femsa |
406 |
|
3 |
Grupo México |
485 |
|
4 |
Grupo Modelo |
719 |
|
5 |
GFNorte |
785 |
|
6 |
Cemex |
810 |
|
7 |
Grupo Inbursa |
864 |
|
8 |
Grupo Televisa |
880 |
|
9 |
Grupo Bimbo |
974 |
|
10 |
ALFA |
1010 |
|
11 |
Industrias Peñoles |
1077 |
|
12 |
Minera Frisco |
1097 |
|
13 |
Fresnillo |
1151 |
|
14 |
Grupo Carso |
1256 |
|
15 |
El Puerto de Liverpool |
1344 |
|
16 |
Soriana |
1493 |
|
17 |
Grupo Elektra |
1548 |
|
18 |
Kimberly-Clark de México |
1926 |
TABLA 1. Fuente: (Forbes Staff, 2011).
|
Company |
Sales |
Earnings |
Assets |
|
|
|
América Móvil |
49.2 |
7.3 |
69.7 |
|
Femsa |
13.7 |
3.3 |
18.1 |
|
|
Grupo México |
8.3 |
1.8 |
14.9 |
|
|
|
América Móvil |
30.22 |
5.4 |
34.7 |
|
Femsa |
15.08 |
0.76 |
16.07 |
|
|
Grupo México |
5.02 |
0.9 |
12.01 |
|
|
|
América Móvil |
25.01 |
4.35 |
31.64 |
|
Femsa |
12.16 |
0.49 |
13.27 |
|
|
Grupo México |
4.69 |
8.1 |
8.82 |
TABLE 2. Fuente: (Forbes Staff, 2011).
Graphics
CHART
1. Source: (América Economía, 2010).
FIGURE 2. Source:
(Forbes Staff, 2011).