International Journal of Arts & Sciences,

CD-ROM. ISSN: 1944-6934 :: 4(12):383396 (2011)

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THE ROLE OF CROSS-BORDER MERGERS AND AQCUISITIONS

FOR SELECTED EUROPEAN TRANSITION ECONOMIES
Davor Filipovi, Najla Podrug and Marijan Cingula
Faculty of Economics and Business Zagreb, University of Zagreb, Croatia
Cross-border mergers and acquisitions, as a part of the growth strategy, but also as a research
field of numerous scientists and consultants, represent prominent phenomenon of developed
capitalist world since the end of 20th century. Researches regarding cross-border M&A are
present in economic literature for a long time period starting from 1890s, but nowadays in
time of globalization their impact is particularly remarkable in terms of size and geographical
dispersion. The focal interests of this paper are cross-border transactions in transition
economies. Selected CEE countries are Slovenia, Croatia, Bosnia and Herzegovina, and
Serbia. These countries are deficient in cross-border transaction analysis and are interesting
for academic research since they resemble in political history and current transition processes.
Analyzed transactions were cross-border mergers and acquisitions, precisely cross-border
acquisitions since they account more than 95% of all cross-border transactions in selected
CEE countries. Results indicate that trends in M&A activities in selected CEE countries are
consistent with general - national and globe economic tendencies. Furthermore, the
dynamics of cross-border M&As are largely similar to those of domestic M&As for each
country, even though they differ in volume. However, due to their international nature, crossborder M&As also involve unique challenges, as countries have different economic,
institutional (i.e., regulatory), and cultural structures. Due to the growing importance and
popularity of cross-border M&As, this study provides relevant review of the extant literature
across different areas, applicable empirical research concerning influence of cross-border
M&As for economic development of transition economies and finally provides potential areas
for future research.
Keywords: Cross-border M&As, Slovenia, Croatia, Bosnia and Herzegovina, Serbia.

INTRODUCTION
In turbulent business environment of 21st century companies are forced to use different growth
strategies in order to successfully position with respect to competition and to preserve and
increase their profit margins. Growth strategy is part of the corporate strategy which emphasizes
corporation as a whole and provides answers regarding business scope of the corporation and
recourse allocation (Tipuri, 2005). Growth strategies are concerned with increasing the size and
viability of the business over time. A successful growth strategy will allow companies to
increase its customer base, market segments, geographical scope, and/or product lines, which
should lead to revenue growth. Permanent growth enables them to build and sustain their
competitive market position. In planning growth strategies, managers are concerned with three
key issues: (1) where do we allocate resources within our business in order to achieve growth, (2)

383

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Davor Filipovic, Najla Podrug and Marijan Cingula

what changes in business scope do we see as compatible with growth and overall strategic
decision, and (3) how do we time our growth moves compared to competitors (Harrison and St.
John, 2008)?
In the following section we define mergers and acquisitions. The focal interests of the paper
are cross-border transactions and we provided relevant literature review across different areas.
Analysis of cross-border M&As was conducted in transition economies. Selected CEE countries
are Slovenia, Croatia, Bosnia and Herzegovina and Serbia. These countries are deficient in crossborder transaction analysis and are interesting for academic research since they resemble in
political history and current transition processes. Analyzed transactions were cross-border
mergers and acquisitions, precisely cross-border acquisitions since they account more than 95%
of all cross-border transactions in selected CEE countries. In conclusion we stress the importance
of M&As as growth strategies but also the importance of organizational variables for crossborder M&A success.
CONCEPTUALIZATION OF M&A
Acquisition refers to purchase of controlling interest of company A in company B.
Controlling interest presents purchase of more than 50% voting shares of company B. In most
cases, payment instrument of controlling interest is cash, shares of company A or combination
of cash and shares. Acquirer is usually bigger than target company (Agwin, 2007). Target
company becomes an integral part of a company that is bigger, has larger market share and
occasionally takes its name. Sometimes target company keeps its own name while operating
within the new group but loses operational autonomy and instead of its previous strategy uses the
strategy of acquirer company (Tipuri, Markulin, 2002). According to the Companies Act
regarding acquisition of one or more companies from another company, one or more company
can transfer all its assets (assets of target) to another company (Barbi, 2007).
In foreign and domestic literature just like in business world, English terms takeover and
acquisition are often used as synonyms. Regardless the facts that there is no tangible difference
between these two terms, in practice and literature, these terms are used interchangeably. Main
distinction is reflected in the fact that the term takeover is used to indicate a hostile takeover in
which the target company resists the takeover, while the term acquisition is used more for
takeovers that have a friendly character (Orsag, Gulin, 1996). In addition, the term takeover in
the UK refers to take over the company whose stock quote on the capital market, while term
acquisition refers to takeover of companies whose shares do not quote on the capital market
(Wikipedia, 2011).
Friendly takeover is one in which management of target company does not resist the
takeover and thinks that it is good option for owners of the company. In this situation, the
management of target company, after an agreement on the sale of shares to the acquirer, informs
the owners about the sale and advises them to sell their shares too. In most cases the owners are
asked to transfer their shares to a specific financial institution with authorization under which
their shares are transferred to the acquirer (Birgham, Ehrhardt, 2005). A hostile takeover is a
takeover in which management of the target company opposes takeover and thinks that it is not
good option for owners of the company. In a hostile takeover there is no agreement between the
management of target company and acquirer, and the management of acquirer is trying to buy
shares of the target company directly from the shareholders through a hostile tender offer trying
to avoid the management of target company (DePamphilis, 2008). Takeover can be characterized
as hostile if management of target company rejects takeover bid and acquirer persists in takeover

The Role of Cross-Border Mergers and Aqcuisitions for Selected European Transition Economies

385

and in the case when management starts the acquisition without informing the management
target company. In the case of a successful hostile takeover the management of target company is
usually replaced as opposed to friendly takeover when management of target company retains in
many cases the position it had before the acquisition (Tipuri, 2008). Hostile takeovers are often
closed at a much higher price than friendly takeovers because they can attract other bidders who
initially were not interested in target company. For this reason and due to the fact that the
integration of target company in the acquiring business system is much faster the takeover actors
tend to favor acquisitions which have a friendly character (DePamphilis, 2010).
Unlike takeovers, where one company buys another and continues to operate integrating
acquired company into his own business system, the merger is joining two or more companies.
During the merger of two or more companies result is a new company, and companies that were
independent before cease to exist (Nickels, McHugh, McHugh, 2002). In accordance with the
theoretical knowledge gained in the merger process, as a rule, egalitarian companies decide to
merge in order to form a new organization with an emphasis on retaining the best business
practices of all participants in the merger process. Mergers are always characterized by a
voluntarily of all participant in such procees, they are usually financed by exchanging shares. In
practice, usually two companies are joining the new business entity. Replacement ratios depend
on market prices of both companies (Tipuri, 2008). Name of new business entity usually
involves names of both companies involved in merger. For example, the merger of
Pricewaterhouse and Coopers & Lybrand has resulted in a new name PricewaterhouseCoopers
(Agwin, 2007). According to the Companies Act two or more corporations can merge so that the
liquidation is not carried out, establishing a new company which passes the entire assets of each
of the companies that come together in exchange for shares of new company (Barbi, 2007).
The Companies Act also defines a cross-border merger. Under the provisions of the Act
cross-border merger is a merger in which at least one of the participating companies in the
merger, is publicly traded or limited liability company duly incorporated according to Croatian
law and at least one of the companies participating in the merger is capital company in the sense
of Article 2 Item 1 2005/56/EZ Directive of the European Parliament, which has been duly
incorporated under the law of other country of the European Union or a country that is
contracting party of Treaty on the European Economic Area. Cross-border is also a merger
where one of companies is duly incorporated and has its headquarters in a country that is not a
member of the European Union nor the Contracting Parties of the Treaty on the European
Economic Area, and provided that the other company is duly incorporated according to Croatian
law and has registered office, central administration or central place of business in the Republic
of Croatia (Barbi, 2008).
CHARACTERISTICS OF CROSS-BORDER M&A ACTIVITIES
The increasing globalization of business has heightened the opportunities and pressures to
engage in cross-border M&A activities (Hitt, 2000). Herein we define cross-border M&As as
those involving an acquirer firm and a target firm whose headquarters are located in different
home countries. Several factors are responsible for fueling the growth of cross-border M&As.
Among these factors are the worldwide phenomenon of industry consolidation and privatization,
and the liberalization of economies.
Despite the increasing popularity of mergers and acquisitions, it has been reported that, more
than two-thirds of large merger deals fail to create value for shareholders. Ravenshaft and
Scherer found that profitability of target companies, on average declines after an acquisition. The

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Davor Filipovic, Najla Podrug and Marijan Cingula

propensity for mergers and acquisitions' failure to meet anticipated goals is corroborated by
Erez-Rein et al. (2004) and Carleton (1997) who noted that the rate of M&A failure range from
55 to 70 percent (Lodorfos and Boateng, 2006). Cross-border M&A activities due to their
international nature, also have unique challenges as countries have different economic,
institutional and cultural structure (Hofstede, 2001).
Cross-border M&A activities pose tremendous challenges, in particular in the postacquisition stage (Child et al., 2001). Recent evidence suggests that they are not highly
successful. For example, a study by KPMG found approximately that only 17% of cross-border
M&As create shareholder value, while 53% destroyed it (Economist, 1999). Given the increasing
number of cross-border M&As and their growing importance in the global market, a better
understanding of the opportunities and challenges for the firms following this growth strategy is
required.
Cross-border mergers and acquisitions process should be seen as a series of largely
independent events, culminating in the transfer of ownership from the seller to the buyer rather
than just an independent event. In theory, thinking of a process as discrete events facilitates the
communication and understanding of numerous activities required to complete the transaction.
Thinking of M&As in the context of transaction-tested process, while not ensuring success,
increases the probability of meeting or exceeding expectations (DePhampilis, 2010). When
pursuing cross-border M&As, firms consider various conditions, including country-industry-and
firm-level factors, which relate both to the acquiring and to the target firm. At national and
industry level, factors such as capital, labor and national resource endowments, in addition to
institutional variables such as legal, political and cultural environment, are highly significant. At
the firm level, organizations pursing an international strategy need to identify and evaluate
potential targets to acquire in the host countries (Shimizu et al., 2004).
Cross-border mergers and acquisitions result in major changes in lives of corporations and
those employed by them. The changes occasioned by acquisitions are often wide ranging. They
may change strategies, operations, cultures, the relationship between staff and managers, team
relationships, power structures, incentive structures and job prospects. Cross-border M&A may
require individuals to change their life styles, behavior, personal beliefs and value systems.
Acquisitions create anxiety, fear and often are traumatic events for those who might lose their
jobs (Reilly, Brett, Stroh, 1993). However, it is not just the merger that makes employees
anxious, it is the perceived decline in the organization before the merger takes place, the lack of
other jobs elsewhere, or other constraints that do not allow the employee to leave that create
excessive stress (Davy et al., 1989; Balmer and Dinnie, 1999; Marks, 1999). The turbulence
associated with acquisitions may impact on career loyalty, organizational loyalty, job involment
and satisfaction with job security. Employees have been known to experience the merger as a
loss of a loved one, or may vicariously live the situation as a personal crisis and panic (Sherer,
1994).When an organization merges with another, employees feel as though they have lost
control over important aspects of their lives. That creates heightened stress within the individual,
which usually leads to lower productivity and reduced job satisfaction (Davy et al., 1989). In
case of underperforming target companies, there may be dissatisfaction with present and
therefore greater readiness to accept the imperative of change. Change is always opportunity for
someone and threat for other. Managers may see change as an opportunity to profit out of their
stock options while lower level managers may see change as a threat (Sudarsanam, 2005).
Cross-border mergers and acquisitions have, historically, been analyzed from economic
perspectives like transaction cost economics and ownership-location-internalization framework
(Williamson, 1975; Dunning, 1993). A major focus in these researches has been the uncertainty

The Role of Cross-Border Mergers and Aqcuisitions for Selected European Transition Economies

387

and risk associated with different national cultures and institutional settings. These frameworks
provide limited insights for M&As implementation processes. Recent research has examined the
value of international expansion and cross-border M&As from resource-based perspective and
organizational learning perspective (Vermeulen, Barkema, 2001). Given the increasing strategic
importance of cross-border M&As, both from practitioner and research perspective, Shimizu et
al. suggest that additional theoretical insights and broader focus of research are required
(Shimizu et al., 2004).
Given the scale of change that an acquisition can cause in both firms that are part of the
transaction, change management concepts may be applied to improve post-acquisition
integration. These concepts include assessing speed of change, establishing clear leadership,
clarity of communication, maintaining costumer focus, making tough decisions and dealing with
resistance, and are crucial for M&A success from organizational perspective (Galpin &
Robinson, 1997). The pace of implementing the post-acquisition changes is a conflicting issue in
the literature, with some researchers arguing that immediately after the deal is closed there is a
period when employees at the acquired company expect and even welcome change (Shrivastava,
1986), while other researchers argue that firms should go slow and prepare employees for change
and reorganization (Yunker, 1983). Proponents of quick change, argue that since employees
anticipate reorganization in the acquired company, quick-change implementation helps reduce
uncertainty. Some researchers argue that slow-change implementation is not a result of strategic
planning, but a sign of ineffective management (Haspeslagh and Jemison, 1991). However, there
is an argument that employees in a state of shock after an acquisition can only accommodate a
limited amount of change initially, and therefore, are in favor of step by step approach (Buono
and Bowditch, 1989).
The 2 + 2 = 5'' effect between two business units that will increase competitive advantage
by achieving synergies and improving overall performance is usually primary purpose of
merging and acquiring new firms (Appelbaum et al., 2000). Since synergies are rarely realized
M&A literature indicates that there has been intense interest in examining human and cultural
aspects of M&As as traditional explanations have not adequately explained the high rate of
M&A failures. The literature drawn on cultural differences is derived from the organizational
behavior school of thought. The effects of culture can take place in the early stages of the
acquisition process but are especially crucial in the post-acquisition management period (Quah
and Young, 2005). Systematic research indicates that the greatest danger for value creation that
should come out M&A comes after two companies try to integrate operations. Fralick and
Bolster point out that culture can be a break or make factor in merger equation (Fralick and
Bolster, 1997). Incompatible culture is major reason why financial benefits anticipated from
mergers are often unrealized for Carwright and Cooper (Carwright and Cooper, 1993). Weber
emphasizes that magnitude of cultural differences can effectively impede successful integration
during M&A resulting in poor performance (Weber, 1996). It is widely acknowledged that
cultural compatibility alone is not guarantee to M&A success, but is not wrong to say that
cultural heterogeneity creates tensions and affects financial and managerial performance
(Jamison and Sitkin, 1986; Kanter and Corn, 1994; Brock et al., 2000).
Human resources tend to react negatively after being acquired. However, the strength
duration and dysfunctional effects of such reaction vary between different M&As (Larsson et al.,
2002). This negative employee reaction is often referred as a cultural clash (Buono and
Bowditch, 1989; Chatterjee et al., 1992; Cartwright and Cooper, 1995; Brock el al., 2000).
Cultural clash has been shown to have dysfunctional consequences such as lower commitment
and cooperation between acquired employees (Bouno el al., 1985), greater turnover among

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Davor Filipovic, Najla Podrug and Marijan Cingula

acquired employees (Lubatkin et al., 1999), a decline in shareholder value of the buying firm,
and deterioration of operating performance of the acquired firm (Chatterjee et al., 1992).
According to Carwright and Cooper, and Carey certain culture types can be disastrous and can
lead to cultural ambiguity, confusion and hopelessness. Therefore, the management of the human
factor in M&A has been recognized as an important source of success by number of researchers.
Lodorfos and Boateng conducted a research in chemical industry in period 1999-2004, and had
32 interviews with senior managers of 16 M&A deals. Their study identifies culture differences
between merging firms as the key element affecting M&A success. Almost all interviewers
agreed that M&As often failed to achieve expected outcomes of the merger because of lack of
cultural fit or incompatible cultures (Lodorfos and Boateng, 2006).
Mergers and acquisitions may often result in the breach of implicit employee contracts such
as expectations of future benefits or benign work conditions. They consist of 'personal compacts',
the mutual obligations and commitments that exist between employees and the company. Such
compacts include formal, psychological and social components. Breaches of these contracts or
fear of such breaches may intensify hostility to change. In order to make change acceptable the
acquirer must offer, to those affected, payoffs that are demonstrably superior to their existing
payoffs. Change must be seen to be in the interests of the affected. Such perception is a much a
matter of substance as of the transparency of the process delivering change. In case of
underperforming target companies, there may be dissatisfaction with present and therefore
greater readiness to accept the imperative of change (Sudarsanam, 2005).
Considering the research evidence about the importance of corporate culture and human
factors in M&A success it is crucial to assess culture compatibility before the deal (Schreader
and Self, 2003). While strategic change and the consequent change in the architecture of the
merging firms my result in culture change, culture change my often be precondition for both
organization structure change and strategic change (Sudarsanam, 2005).
Behavior of acquirer is extremely important for successful acquisition. Honesty, sensitivity,
competence and willingness to share with target employees the benefits of the acquisition are
important variables for success. No matter what kind of change should take place in target
company its influence on employees has to be taken into consideration. Honest dealing and care
for employees are indispensable to ensure a willing cooperation and commitment to change.
COMPARISON OF CROSS-BORDER M&A ACTIVITIES IN SELECTED
CEE COUNTRIES
The focal interests of the paper are cross-border transactions in Slovenia, Croatia, Bosnia and
Herzegovina, and Serbia. Data was obtained from Mergermarket database covering transactions
of 5 million USD and more in the time horizon from 1998 until 2010. Cross-border M&A values
are reported at the time when the deal was announced.
As a young independent republic, Slovenia pursued economic stabilization and further
political openness, while emphasizing its Western outlook and central European heritage.
Reflecting its success in these goals, Slovenia became a member of the European Union (EU) in
2004. Despite recent declines in GDP growth, Slovenia is one the best economic performers in
Central and Eastern Europe, with a GDP per capita of $28,118 in 2010. Although it comprised
only about one-thirteenth of former Yugoslavia's total population, Slovenia was the most
productive of the former Yugoslavian republics, accounting for one-fifth of its GDP and onethird of its exports. Slovenia's economy is highly dependent on foreign trade. This high level of
openness makes Slovenia extremely sensitive to economic conditions in its main trading partners

The Role of Cross-Border Mergers and Aqcuisitions for Selected European Transition Economies

389

and changes in its international price competitiveness. Keeping labor costs in line with
productivity is a key challenge for Slovenia's economic well being. Services contributed the most
to the national output in 2010, accounting for 61% of GDP. Industry and construction comprised
37% of GDP, and agriculture, forestry, and fishing accounted for 2% of GDP.
Croatian GDP reached USD 17,857 in 2010, putting Croatia ahead of some EU member
states such as Bulgaria, Romania and Latvia. Croatias economy was hit hard by War of
Independence and the global financial crisis, and has recovered more slowly than many of its
neighbours (Slovenia). GDP fell a further 1.2% in 2010 (about $62.25 billion), while estimates
for growth in 2011 range from around 1.3% to 1.8%. Croatia is a service-based economy, with
the service sector accounting for 67% of the total GDP. Labor force in Croatia is 1,78 million
while in Slovenia is 930,000. It is hard, or even impossible, to compare Croatia (consequences of
war, slow economy recovery, debt, high rate of unemployment etc.) with Slovenia, which is
smaller, already part of EU and which had already spread their economic activities on European
market.
The war in 1990s caused dramatic changes also in Bosnian economy. GDP fell by 75% and
the destruction of physical infrastructure devastated the economy. Bosnia and Herzegovina has
several levels of political structuring, according to the Dayton accord. Most important of these
levels is the division of the country into two entities: Republika Srpska and the Federation of
Bosnia and Herzegovina. The Federation of Bosnia and Herzegovina covers 51% of Bosnia and
Herzegovina's total area, while Republika Srpska covers 49%. While much of the production
capacity has been restored, the Bosnian economy still faces considerable difficulties. In 2010
GDP reached USD 8,063.
Serbia, also former Yugoslavian republic with population of 7,3 million (estimation form
2010) is the largest country among these selected CEE countries. Estimation for GDP in 2011 is
USD 11,245 per capita. The economy has a high unemployment rate of 14% and an
unfavourable trade deficit. In July 2010, the credit rating agency Dun & Bradstreet rated Serbia's
economy at DB4d which reflects concern for the slower-than-expected recovery of the economy
from the global financial crisis, along with the continuous high business risk due lowered credit
capabilities, increasing company bankruptcy and generally poor economic prospects.
Dynamics and volume of M&A activities reflect the economic growth intensity as well as
economic recession and periods of recovery. Table 1. presents M&A activities in Slovenia,
Croatia, Bosnia and Herzegovina, Serbia, EU and world from 1998 until 2010. Analyzed time
period from 1998 until 2010 is chosen because of few reasons. Firstly, it covers period of growth
and prevalent dynamics as well as period of recession and severe activity decline. Furthermore,
major M&A activities started in 1999 and 2000.
The end of 20th century and beginning of 21st century illustrate significant increase of
business deals including mergers and acquisitions, strategic alliances, joint ventures worldwide.
It is evident from table 1. that there was effect of September 11th 2001 on reduction of business
deals, especially in USA. Global financial and economic crisis that started in 2008 affected the
volume of M&A activities in the world. When comparing year 2007 with year 2009, the M&A
activities reduction is alarming. Global activities decreased by 43,3%, EU activities by 45,6%,
in Slovenia by 70,3%, in Croatia by 58,8%, in Bosnia and Herzegovina by 50% and in Serbia by
64,7% from 2007 until 2009.
Figure 1 presents dynamics of Slovenian, Croatian, Bosnian and Serbian M&A activities
from 1998 until 2010. In analyzed period, the total of 122 large M&A transactions have been
recorded in Slovenia, 136 large transactions have been recorded in Croatia, 36 in Bosnia and
Herzegovina whereas in Serbia there were 197 large M&A transactions. M&A activities first

390

Davor Filipovic, Najla Podrug and Marijan Cingula

started in Croatia, while in Bosnia and Herzegovina and Serbia initial activities happened in
2001.
Table 1. Dynamics of M&A activities in Slovenia, Croatia, Bosnia and Herzegovina,
erbia EU and world from 1998 until 2010.

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D^

Dh

D^
D

D,

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Dt

Figure 1. Comparison of M&A activities in selected CEE countries.

Private M&A is transaction that does not require shareholder approval in a public forum either
from the bidder, target or vendor shareholder while public transaction requires one. Figure 2
indicates that 11,7% of all Croatian M&A activities and 15,6% of all Slovenian M&A activities
from 1998 until 2010 are public, while 88,3% are private Croatian and 84,4% are private
Slovenian M&A activities. In Bosnia and Herzegovina and Serbia these proportions are to some
extent different to Croatian and Slovenian. 2,94% of all Bosnian M&A activities and 4,17% of
all Serbian M&A activities from 1998 until 2010 are public, while 97,06% are private Bosnian
and 95,83% are private Serbian M&A activities. This is consistent with proportions in other
European countries e.g. Germany with 5% public and 95% private transactions, France with 8%
public and 92% private transactions and Italy with 5,6% public and 94,4% private transactions.
Partial explanation for proportion of private and public transactions for selected CEE countries
and previously mentioned European countries are characteristics of Continental corporate
governance system which is unique for all of them.

The Role of Cross-Border Mergers and Aqcuisitions for Selected European Transition Economies

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Figure 2. Comparison of M&As arena among selected CEE countries.

Domestic transaction is a transaction concluded within a nationally boundary i.e. a deal

involving two or more increment nationals, while cross-border is transaction that is conducted
across national boundaries i.e. a deal that involves companies from at least two different
nationalities. It is evident from figure 3 that 16,9% of M&A transactions in Croatia, 20,5% of
M&A transactions in Slovenia, 11,76% of M&A transactions in Bosnia and Herzegovina and
22,40% of M&A transactions in Serbia are domestic. Evidently, the largest proportion of
domestic transactions is present in Serbia. Partial explanation could be their politics of isolation
and to some extent aversion towards foreign capital that was present in near history, but also
Serbia is slightly bigger country that Slovenia and Bosnia in terms of population, economy
potential etc.





 



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Figure 3. Deals geography from 1998 until 2010.

Meanwhile, in Bosnia and Herzegovina 88,24% and in Croatia 83,1% are cross-border
transactions whereas in Slovenia 79,5% and in Serbia even less, 77,60% transactions are crossborder. These statistics are not consistent to leading European countries that do not have such
imbalance. E.g. Germany has 42% domestic and 58% cross-border transactions; France has 51%
domestic and 49% cross-border transactions; Italy 57% domestic and 43% cross-border
transactions. Since capacity of these CEE economies and their markets are limited and less

392

Davor Filipovic, Najla Podrug and Marijan Cingula

developed when compared to leading European countries, therefore many activities in these CEE
economies have cross-border character.

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Figure 4. Comparison of selected CEE countries with leading EU countries in cross-border activities,
from 1998 until 2010.

In selected CEE countries all of the largest transaction in terms of value are cross-border
transactions which confirms their role for economic development of these transition economies.
In the following paragraph will focus on industry- and country-factors of M&As.
The largest activity in Slovenia was recorded in 2002 and that was the acquisition of Nova
Ljubljanska banka by Belgian KBC Bank for 435 million Euros. Second largest transaction was
the acquisition of Droga Kolinska by Croatian Atlantic Grupa for 382 million Euros. Third
largest transaction happened in 2009 when Telekom Slovenije d.d. acquired Macedonian
COSMOFON AD Skopje and Germanos Telekom SA Skopje for 190 million Euros.
The largest activity in Croatia was recorded in 2006. In 2006 the largest transaction was
acquisition of Croatian pharmaceutical company Pliva d.d. Zagreb by USA-based specialty
pharmaceutical company Barr Pharmaceuticals, Inc., for 2,094 billion Euros followed by
financial sector acquisition of HVB Splitska Banka d.d. by Societe Generale de France
(transaction value 1 billion Euros). After that, acquisition of 22,15% stake of oil and gas
exploration and production company INA d.d. by MOL Hungarian Oil and gas Public Limited
Company (870 million Euros) conducted in 2008 and acquisition of 35% stake of Croatia
Telecom by Deutsche Telecom in 1999 for 788 million Euros followed by additional 16% stake
acquisition of Croatia Telecom by Deutsche Telecom in 2001 for 500 million Euros.
Two largest activities in Bosnia and Herzegovina were recorded in 2006. The largest
transaction was acquisition of 65% of Telecom Srpske by Telecom Serbia for 616 million Euros
followed by acquisition of 80% stake of oil and gas exploration and production company
Rafinerija Nafte Bosanski Brod by Russian Zarubezhneft JSC for 247 million Euros.
The largest activity in Serbia was also recorded in 2006 and it was acquisition of Telenor by
Norways Telenor ASA (1 193 million Euros), followed by acquisition of 65% of Bosnian
Telecom Srpske by Serbian Telecom Serbia for 616 million Euros. After that, the largest
transaction was the acquisition Hemofarm Corporation by Germaine STADA Arzneimittel for
556 million Euros conducted also in 2006.
The values of the largest transactions are somewhat larger in Croatia and Serbia when
compared to Slovenia and Bosnia and Herzegovina, although they are not comparable to the
values of transactions of developed economies. What is also important that among the largest
transactions in Serbia there are also acquirers from Serbia, not just target Serbian companies and
same conclusion is valid for Slovenia, while among Croatian and Bosnian largest transactions

The Role of Cross-Border Mergers and Aqcuisitions for Selected European Transition Economies

393

there are none Croatian and Bosnian acquirers. However, the largest acquisition by Croatian
bidder happened in 2010 with deal value of 382 million Euros. Croatia based holding company
that unifies distributors of customer goods, producers of foods, cosmetics and hygiene products
Atlantic Grupa d.d. Zagreb acquired Slovenia based food and beverage company Droga
Kolinska.
Leading global and European industries in M&A activities are customer industries (food,
drinks, retail and other services), industrial product and electronics, followed by financial sector.
Industrial structure of the largest transactions in selected CEE countries is very similar, with
telecommunications present in all countries. For example, Croatian M&A activities encompass
industries such as customer industries, financial, pharmaceutical, industrial products and
services, and that structure is similar with European countries.
7 4
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Figure 4. Industrial structure of Croatian M&A activities

Logically, industrial structure of Croatian M&A activities is comparable to industrial structure of

Croatian economy. Austrian, Italian and French bidders significantly participate in financial
sector of M&A activities in Croatia since leading Croatian banks have been acquired by banking
groups based in Austria, Italy and France. Industrial structure of Croatian M&A activities
corresponds to the industrial structure of the other CEE countries that are in the focus of this
research.
CONCLUSIONS
With increased external pressures companies have increasingly searched outside their internal
boundaries and national borders to build or reinforce their competitive capabilities. The
relevance of cross-border M&A activities as critical part of growth strategies has been identified
and analyzed. It is indicative that trends in M&A activities are consistent with general - national
and globe economic tendencies. Empirical research ratifies the relevance of cross-border M&A
activities for selected CEE companies. Moreover, many similarities among selected CEE
countries are identified regarding cross-border M&As that are verified as significant segment in
total M&A activities.
Since mergers and acquisitions are popular choice for growth and expansion, companies
from selected CEE countries will have to engage in these transactions more often if they want to

394

Davor Filipovic, Najla Podrug and Marijan Cingula

be competitive. Therefore it is extremely important that they peruse growth strategies but also
take into consideration presented evidence about the importance of organizational variables for
cross-border M&A success. Republic of Croatia is on its way to European Union (expected
entering date confirmed by EU Commission is 01.07.2013.) and Bosnia and Herzegovina and
Serbia will probably join EU in near future so an increase in cross border M&A activity can be
expected, and it is extremely important that changes affecting target employees should be
managed carefully both by practitioners from selected CEE countries and foreign investors
buying companies from these countries.
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