Transnational M&A In Energy&Resources Area: Global And China's Pricing And Performance

Number of resources companies has been seen soaring in China since its economy enteredinto the phase of heavy industry production. On top of that, China's rapid increase in foreignreserve plus its on-course shift in economy growth model have underpinned the fact that Chineseenterprises are in great need of "going global" to make overseas M&A. On the other hand,Chinese companies are usually lack of experiences in M&A; having uneven shortcomings inpricing capability losing from un-justified acquisition cost as well as unable to restructure andintegrate the company effectively after the M&A (no significant increase in the performances afterthe M&A in many cases), these are all major issues faced by Chinese resources companies whenmaking cross-border M&A. Therefore, this paper takes the practical elements that affectingcross-border M&A pricing as the starting point, use the latest development of M&A theories as theguideline, selected6parameters including: production in accordance to equity holding; energyprices; global macro-economy condition; liquidity status; oversea governments' polices on foreigncapital; corporation scale comparison etc to expand on the conventional DCF model; establish thispapers' cross-border M&A pricing model; it also sorts out and summarizes the mechanism thataffect M&A pricing. Meanwhile, it also uses the hypothetical testing to analyze the global anddomestic resources companies' M&A performances.Under the theoretical framework mentioned above, this paper uses the global resources M&Adeals between1991-2009as the sample, selected14paradigm among them to carry out thequantitative analysis. The findings are: in the global resources M&A cases studied, the3parameters that affect the M&A pricing the most are equity output; energy prices; global economicgrowth; their elasticity to the pricing are1.23,1.04and1.21respectively. Also, the globalresources M&A pricing also appeared to share some of the characteristics of asset pricing, it goesup and down in line with the global liquidity status. The restriction on foreign capital will bring upthe resources M&A, and the corporation scale will have favorable effect on the M&A pricing. In terms of after M&A performances, the11cases selected to perform the hypothetical test suggestthat M&A would have a relative large impact on the stock price in the near-term, and significantlyimprove the profitability of the corporations in both short-term and long-term.This paper concludes: it is evident that energy commodity prices,market liquidity and globaleconomic growth rate are the3macro factors that affect the M&A pricing, therefore, when thesethree factors are favorable to the M&A pricing, it is the best time to actively seek for resourcesM&A, especially in the middle of an economic downturn. Regarding the issue of selectingdifferent strategies in different countries to make resources M&A: firstly, in developed countrieswhere competitive trait is obvious, it is necessary to use cautious strategy, whereas take initiativesand active tactic. Secondly, in resource rich but less developed and political stable countries, it isnecessary to take initiatives and use active strategy, whereas cautious tactic. Thirdly, in neutralopen developed countries, take initiatives and active in both strategy and tactics. When choosingthe target companies, first look for enterprises with rich reserves but relatively low production,then use different pricing strategies for different scale of Target Company.