Advantage of an M&A initiative within the Eurozone

The European Union or EU, as we know it today, was formed through a series of treaties specifically designed to protect the businesses, economies, and citizens of its Member States. Although the Treaty of the European Union was not signed until 1992, the first of the series of treaties leading up to its formation, the Treaty Establishing the European Coal and Steel Community, (ECSC), and was signed in 1951. These treaties are agreed upon democratically and voluntarily and updated as countries accede and as European society develops, (Europa, n.d.). Criteria to become an EU Member State are stringent, as such currently only 27 of approximately 50 European countries are members; of these only 16 countries comprise the “euro zone”, those countries which are able to operate utilizing a single monetary unit called the “euro”.

As such, protectionist policies and trade barriers can exist between the 27 countries that form the EU today and the U.S. An example of such a protectionist policy was the 1993 EU implementation of a trade limitation of imports of fruit from Latin America in preference of imports of fruit from their former colonies in Africa, the Caribbean, and the Pacific, (the ACP). Prior to the import limitation Chiquita Brands International controlled almost 30 percent of the market for fresh fruit in the EU. In 1995 when the World Trade Organization ruled the policy was discriminatory Chiquita had already lost 1/3 of the market. Dole Food Company, already the largest producer of fresh fruits, had previously established relationships with many of these former colonies and as a result gained 4% of Chiquita’s lost market share during this two year period: to date Chiquita’s European market is still in decline due to the continued resistance of EU Member States to accept the ruling, (Bucheli, 2007). Noticeably, this is an example of how the European social climate can affect EU policies and can be a disadvantage to foreign companies operating within the Member States that do not share or have divergent social concerns.

Although the barriers to doing business in the EU are generally low and the member nations are stable politically, U.S. exporters do continually face difficulties to entry in EU markets, specifically regulatory and technical standards if U.S. standards are different, (U.S. Commercial Service, 2008). Similarly, an advantage of the acquisition of a firm within the EU can be access to a relatively large, secure, and stable economic market through a firm that is already knowledgeable regarding EU standards. Additionally the free flow of goods throughout the 27 Member States can be beneficial if a firm is in compliance with EU standards.

Acquiring a company within the EU can be a difficult and laborious task for an American firm as that firm needs to comply not only with EU regulations and directives, but also the laws of the individual Member State. The market opportunities, however, clearly outweigh the market challenges once the acquisition is complete when considering the portability of capital between EU Member States, even those that do not utilize the euro. Although each Member State currently maintains separate customs policies, and other Member State laws still apply, the EU Treaty places virtually no restrictions of capital movements and payments between the Member States and there are few restrictions between the Member States and third countries like the U.S., (U.S. Commercial Service, 2008). A country that is not an EU Member State would not necessarily allow this unrestricted movement of capital throughout Europe and to third countries.

Another significant advantage to selecting a company that utilizes the euro is that business transaction costs are minimized, questions regarding the stability of the currency are mitigated, and transparent pricing is assured among the 16 euro zone countries, (Eiteman, Stonehill, & Moffett, 2007, p.47). Although barriers to openness still exist between the euro zone countries and the other Member States of the EU, adoption of EU standards still greatly facilitates trade among these countries. Due to these overwhelming advantages, doubtlessly the acquisition of company that is headquartered within the EU and already uses the euro is adept in EU standards. As such, all other criteria aside, acquisition of a company headquartered within the EU and uses the euro would be preferable to the acquisition of a company that is not headquartered in an EU Member State and does not use the euro.



References:

Bucheli, M. (2005, November). Banana war maneuvers. Harvard Business Review, 83(11), 22-24. Retrieved from EBSCOhost Business Source Complete.

Eiteman, D., Stonehill, A., & Moffett, M., (2007). Business Finance for the Multinational Corporation. Upper Saddle River, NJ: Pearson/ Prentice Hall.

Europa, The EU at a Glance: Treaties and Law. (n.d.). Retrieved from http://europa.eu/abc/treaties/index_en.htm

U.S. Commercial Service. (2008, February 14). Doing Business in the European Union: 2008 Country Commercial Guide for U.S. Companies. Retrieved from http://www.buyusa.gov/europeanunion/doing_business.html