International Corporate Governance and Control 1
Chapter 15
International Corporate Governance and Control
Lecture Outline
International Corporate Governance
Governance by Board Members
Governance by Institutional Investors
Governance by Shareholder Activists
International Corporate Control
Motives for International Acquisitions
Trends in International Acquisitions
Barriers to International Corporate Control
Model for Valuing a Foreign Target
Factors Affecting a Target Valuation
Target-Specific Factors
Country-Specific Factors
Example of the Valuation Process
International Screening Process
Estimating the Target’s Value
Changes in Valuation Over Time
Disparity in Foreign Target Valuations
Expected Cash Flows of the Foreign Target
Exchange Rate Effects on Remitted Earnings
Required Return of Acquirer
Other Corporate Control Decisions
International Partial Acquisitions
International Acquisitions of Privatized Businesses
International Divestitures
Control Decisions as Real Options
Call Option on Real Assets
Put Option on Real Assets
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
International Corporate Governance and Control 2
Chapter Theme
This chapter emphasizes how an MNC can be subject to governance. The potential for corporate control
can encourage MNC managers to maximize value for their shareholders.
Topics to Stimulate Class Discussion
1. Why are MNCs subject to corporate control?
2. How should MNCs determine whether multinational restructuring is worthwhile?
3. 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 the Internet 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.
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.