1

A
PROJECT REPORT
ON
A CASE STUDY ON INFORMATION TECHNOLOGY CRITICAL TO THE SUCCESS
OF MERGERS AND ACQUISITIONS IN AUTOMOBILES SECTOR




PGDM
(Academic Session: 2014-16)

Submitted To: Submitted By:
Dr. Sunayna Jain Mani Gupta (BM-014121)
Mishika Verma (BM-014127)
Mudit Kumar (BM-014137)
Nitin Aneja (BM-014145)
Praveen kr. Roy (BM-014173)
[Section-C]




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ACKNOWLEDGEMENT

This is a great opportunity to acknowledge and to thank all those people without whose support
and help this project would have been impossible. We would like to add a heartfelt word for the
people who were part of this project in numerous ways.
We would like to thank my project guide Dr. Sunanya Jain for her
indefatigable guidance, valuable suggestion, moral support, constant encouragement and
contribution of time for the successful completion of project work. We are very grateful to her
for providing all the facilities needed during the project development.
















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DECLARATION

We hereby declare that the project work entitled A case study on information technology
critical to the success of mergers and acquisitions in Automobiles sector submitted to
the Institute of Management Studies, Ghaziabad, is a record of an original work done by us
under the guidance of Dr. Sunayna Jain and this project work is submitted in the partial
fulfillment of the requirements for the award of the degree of Post-Graduation Diploma in
Management.



Place: Ghaziabad Name of the students:
Mani Gupta (BM-014121)
Mishika Verma (BM-014127)
Mudit Kumar (BM-014137)
Nitin Aneja (BM-014145)
Praveen Kr. Roy (BM-014173)
(Section-C)




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TABLE OF CONTENTS

INTRODUCTION 05-07
ROLE OF IT IN M&A 08-14
IMPACT ANALYSIS OF AUTOMOTIVE M&A 15-16
CONDITIONS IN AUTOMOBILE INDUSTRY 17-23
DATA ANALYSIS & INTERPRETATION 24-27
CONCLUSION 28
BIBLIOGRAPHY 29
QUESTIONNAIRE 30










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INTRODUCTION

Global automotive industry merger and acquisition (M&A) activity slowed during the first half (H1) of
2012, according to PwC.
In H1 2012, 264 deals closed with a disclosed value of $10.6 billion, reflecting a sizeable decline compared to
H1 2011, which totaled 303 completed deals with a disclosed valued at $18.8 billion.
'Europe is taking a toll on global M&A deal activity,' said Paul Elie, U.S. automotive transaction services
leader, PwC. 'Historically, Europe has been among the most active regions in automotive M&A. That said,
automotive companies from emerging countries like China and India have opportunities to acquire technology
or market access at favorable valuations in Europe.'
The current crisis and ensuing austerity measures significantly impacted the automotive industry, with new car
registrations declining by 6.3 percent through H1 of the year. PwC's Autofacts expects 2012 annual sales for
Europe to decline by 7.3 percent to 12.6 million units, nearly 3.4 million units below the 2007 peak. Given the
current manufacturing footprint in Europe, the region is now straddled with nearly 5.8 million units of excess
light vehicle manufacturing capacity. These challenges diminished the appetite and resources among European
strategic buyers.
These challenges have also heightened the risks around European assets and exposure to the region. The current
operating environment in Europe may translate into favourable valuations and an increase in inbound M&A
activity geared towards acquiring technology and/or market access over the next 12 to 18 months.
Unlike Europe, North America underwent restructuring during the 2008 2009 recession, and is now attracting
more investments. North American operations are also churning out significant profits, providing strategic
buyers with the financial resources to execute M&A strategies. As a result, North American acquirers' share of
global M&A increased from 20 percent in 2010 to 26 percent in the H1 of 2012. North American entities were
also the most prominent cross-border acquirers, with 16 out of 46 cross border deals.
Asia was the most active region with more than a third of the global automotive M&A activity during the H1 of
2012. However, most activity was intra-regional, with 86 out of 98 transactions between Asian entities. With
the domestic sales slowdown in both China and India, buyers from these markets may look for opportunities to
augment domestic sales. These buyers are also likely to pursue technology deals to compete globally, as well as
to defend against foreign competition.
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Component suppliers showing resilience while deal activity slowed across all categories, component suppliers
were the most resilient, registering only a five percent decline in deal volume compared to 19 percent and 21
percent declines in vehicle manufacturers and other categories respectively. A recent PwC supplier
consolidation study predicts sustained component supplier M&A activity, with sub-categories such as chassis
and power train systems as the focal points. Not surprisingly, the study also finds that North American buyers
are the most likely to drive M&A activity in the supplier space. This is due to their relative financial strength
compared to Europe and Japan.
Consistent with the overall Automotive M&A deal market, both financial and trade buyers' M&A
activity slowed during H1 of 2012 compared to H1 of 2011. However, the financial buyers' share of M&A
volume declined to 22 percent, levels not witnessed since the depths of the 2008-2009 recessions.
Similar to the overall M&A trends, financial buyer activity focused on component suppliers, with nearly 55
percent of their deals in this space. This is a significant change from last year, when financial buyers increased
their focus on the others category, comprised of aftermarket, retail, repair, financial services, etc. From a
regional perspective, financial buyers continued to shift away from Europe, gravitating toward deals in more
stable economic and operating climates such as the US.
Deal activity outlook positive PwC's positive outlook for M&A stems from the fact that the global automotive
sector is expected to add nearly 30 million units between 2012 and 2018. Given technological changes as well
as industry fragmentation, M&A activity will likely continue to be an important option, although the timing for
an increase remains uncertain.
According to Paul Elie, PwC maintains positive expectations for deal activity contingent upon the following
conditions: Successful resolution of Europe's sovereign debt crisis; strong economic recovery in developed
markets such as the US and Japan; and resumption of trend line economic growth in emerging markets like
China and India.
Automotive Mergers and Acquisitions
Automotive mergers and acquisitions act as a means of increasing market share and improving reach. Other
related reasons include attaining economies of scale and augmenting product ranges. The global automotive
industry is, however, unlikely to witness the kind of mega automotive mergers seen in the drug or media
industries for two reasons. First of all, most mega deals were struck during the nineties and the turn of the
millennium, reducing future scope for consolidation. Secondly, automotive manufacturers have already
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polarized into six major alliances - GM Alliance, Ford-Mazda, DCX Alliance, Toyota, VW Group and Renault-
Nissan.
Automotive mergers are turning into a strategic option for companies looking to accelerate growth. In addition
to corporate-level alliances, functional collaborations are increasing all over the globe. In the recent past,
several technology and platform sharing agreements have been forged, enabling companies to reduce product
development times and costs.
Merger and acquisition trends in the automotive industry
The automotive industry witnessed a host of major deals during the mid to late 1990s and the turn of the
millennium. As a result, the last few years have seen deals amongst manufacturers dwindle. In fact, the value of
deals fell from USD10 billion in 2002 to USD3.5 billion in 2003.
Some countries in the emerging markets are growing at a spectacular rate. The India auto industry, for example,
grew at a rate of 29 percent in 2003 while the China grew at rate of 35 percent. These staggering growth rates
are attracting global automotive majors to these markets in increasing numbers. Companies are resorting to
acquisitions to gain a foothold in these markets.
First Automotive Works, General Motors and Nissan Motors are trying to consolidate their position in the
Chinese market either through acquisition or equity stakes. Nissan Motors acquisition of a 50 percent stake in
Dongfeng Motors for USD1.032 billion was the biggest deal in 2003.
Competition and the global economic slowdown cut into the sales of Fiat and its debt rating was downgraded to
just one rank above junk status. To reduce its debt, Fiat sold its stake in Ferrari and General Motors. Similarly,
Daewoo Motors, which collapsed after the South Asian crises, was acquired by General Motors.








8

ROLE OF IT IN M&A


The rationale behind prospective merger/acquisition transactions is the expectation of specific business benefits
such as increased market share, reduced joint operating costs, and a more integrated value chain. These
potential Mergers and Acquisitions(M&A)- related benefits are usually directly linked to anticipated synergies
including, but not limited to, shared overhead, economies of scale, cross-fertilization and operational
integration. What is sometimes overlooked or underestimated is the crucial importance of effective IT
integration in achieving anticipated synergies. Examples include:
Shared OverheadReduction of IT support costs through consolidation of IT platforms
Economies of ScaleShared IT procurement
Cross-fertilizationMining of joint customer database information
Operational IntegrationIntegrated production, forecasting and logistics systems
Evidence of the importance of IT to achieving M&A related benefits is reflected in numerous market studies
over the past 10 years that indicate 50% - 70% of merger and acquisition transactions fail to ultimately create
incremental shareholder value1. While there are many reasons for the low rate of success, failed post-merger
integration stands out as the most common root cause.
This paper addresses the essential role that we believe IT must play in the full cycle of M&A activities, from
pre-merger integration planning to post-merger integration, with the goal of increasing shareholder value from
the deal. We define the four basic IT integration models, Preservation, Combination, Consolidation, and
Transformation within the context of the four pillars of M&A and ways they can be pursued in parallel with
both IT and the business.
The four pillars are:
Strategypicking the right model for integration
Due diligencegetting the right information upfront
Post-merger integrationaligning systems and processes
Executioneffectively implementing the merger or acquisition
Deloitte research, data, and practical experience gained from providing consulting services support our position
regarding the importance of closely aligning IT and M&A processes to maintain post-transaction momentum,
and to increase the potential of achieving the defined business goals of the transaction.

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The Quest to Capture Synergies
Synergy word is overused, to be sure, but it has real meaning for companies engaging in a merger or acquisition
process. Synergy is defined as, a mutually advantageous conjunction or compatibility of distinct business
participants or elements (as resources or efforts) 2. Creating these advantageous conjunctions and
compatibilities can have significant benefits for companies pursuing M&A activities. Some potential benefits
include:
Increased market share.
Expanded technical and management capabilities.
Reduced costs through economies of scale.
Improved market position.
Increased assets.
Diversification.
Integration along the value chain.

Failing at the Quest: What Goes Wrong
Through our experience serving multiple companies in a variety of industries, Deloitte has observed that one of
the most frequent causes of failure to achieve expected M&A-related benefits is poor planning and execution of
the merger project. Poor IT integration, especially the integration of disparate IT architectures, can be extremely
detrimental.
Applications, data and infrastructure should enable efficient and effective business processes. Without effective
planning and execution of the right IT integration strategy, the capture of sought after synergies between the
acquiring and acquired companies will likely fall short of expectations.
In a recent effort to quantify the relationship between IT integration and M&A success, we conducted a survey
of over 50 M&A (including divestiture projects) transactions from 2005 2007 to test the following hypothesis:
The lack of attention to pre-merger strategy setting, IT due diligence, post-merger IT planning and execution, as
well as poor IT/business coordination, are dominant factors in explaining the empirical rate of M&A success.



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Our findings were consistent with this hypothesis. Our survey results suggest that while IT typically has limited
impact on the valuation of the deal, early involvement of IT in due diligence is critical to the effective
identification of synergies and the effectiveness of subsequent post-merger planning and execution.

While the data with respect to the role of IT integration and its impact on the results of M&A transactions is not
conclusive, when taken together with anecdotal evidence, the hypothesis is compelling. The available evidence
points to a straightforward approach to M&A deals that will significantly improve the odds of achieving the
expected benefits.

Getting it Right
This straightforward approach starts with the recognition that IT activities must be closely aligned with business
activities during the M&A process. As we highlighted earlier, there are four dimensions to an M&A transaction:
Strategy
Due diligence
Post-merger IT integration planning
Execution

Strategy
Companies vary, of course, in their motivations to pursue M&A deals. Some are pioneers. The reasoning for the
merger is to combine two (or more) entities to create a better future. These companies are most likely to have
the desire to seek out synergies as their main motivation for the combination. Others are talent scouts. Often in
this scenario, the acquiring, or larger entity, wants to acquire knowledge or capabilities that it doesnt have.
These companies also desire to create synergies with the combination. Then there are the consolidators. These
companies seek mainly operating value from the merger or acquisition. Finally, there are the revenue hunters.
These companies desire operating value from the combination, but their main motivation is growthin revenue
and in size.
Whatever the strategy chosen, there are critical success factors that will help improve the odds of achieving the
expected benefits.

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They are:
The business must be accountable for setting the IT integration strategy.
Make the integration strategy explicitconsolidation, transformation, combination, or
preservationeach has specific critical success factors and risks.
Set realistic targets and concrete performance measures for meeting the targetsas well as
consequences for not meeting them.


Due Diligence
No matter the merger agenda, due diligence is not an optional process. Performing due diligence, especially
with regard to information systems compatibility and integration issues, is absolutely critical. When correctly
performed, due diligence can help identify risks and opportunities. The risks include sources of instability
requiring immediate action. Opportunities to reduce costs, leverage resources or assets in new areas, and to
improve IT effectiveness and increase business flexibility can be identified and pursued.
Moreover, during the due diligence process, decisions or actions that will be needed before there is any
significant progress on the merger or acquisition can be identified. Expectations can also be set. For example,
order-of-magnitude estimates of expected costs and anticipated benefits can be developed, and resources and
timeframes required to address risks and issues and to capitalize on opportunities can be identified. Finally, due
diligence should confirm how much (or how little) compatibility there is between IT architectures and assets of
the merging entities.
As with the process of setting the strategy, there are critical success factors in performing due diligence that will
help improve the odds of achieving the expected benefits. They are:
Form an IT integration team early in the due diligence process
Get the right people on the teamboth internally and externally. These people should have cross-
functional knowledge and experience, and be able to see the big picture going forward
Set a broad due diligence scopefrom assessing the IT environment to assessing risk and
identifying potential synergies
Set the baselinethe knowledge base that must be in place to move forward with the M&A
process.


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The bottom line is that IT due diligence should result in a high level action plan to mitigate identified risks,
resolve key issues, and capitalize on major opportunities.

Post-Merger Integration PlanningThe Model Makes the Difference
Once due diligence is finished, the results can be used to push forward with post-merger integration planning.
When two companies merge, or when one acquires the other, there are a myriad of scenarios in which the
combination can occur. In general, there are four models or approaches that can be applied to post-merger
integration of most M&A transactions.
They are:
ConsolidationCalls for the rapid and efficient conversion of one company to the strategy, structure,
processes and systems of the acquiring company
CombinationMeans selecting the most effective processes, structures and systems from each
company to form an efficient operating model for the new entity
TransformationEntails synthesizing disparate organizational and technology pieces into a new whole
PreservationSupports individual companies or business units in retaining their individual capabilities
and cultures
The approach a company chooses is dependent on its goals for the new entity. More specifically M&A business
objectives usually reflect the acquiring companys acquisition profile and business agenda, as discussed in the
strategy section above.

Execution
Each of the four post-merger IT integration approaches has associated execution priorities and management
issues that must be addressed. The execution priorities focus on process and technology integration. The
management issues include leadership and cultural blending challenges.
For example, with a consolidation approach to IT integration, the focus is on risk management for process
issues and on data conversion for technology issues. With a combination approach, the process focus is on
systems evaluation and the technology focus is on systems integration. With a transformation approach, the
process emphasis is on innovation; the technology emphasis is on the overall IT architecture. Finally, with a
preservation approach, stakeholder management is the focal point of process issues, while communication
between business units is key for technology concerns.
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Management issues can be challenging, even in the smoothest of M&A transactions. The blending of
organizations and cultures is not easy because no matter the industry, no two companies evolve in quite the
same manner. Each will each have different leadership styles and cultures. To facilitate the transition to the
newly-merged entity, each post-merger IT integration approach will have to deal with different management
and cultural issues.
For example, the typical leadership style in a consolidation approach to IT integration is an authoritarian
approach that imposes the will of the acquiring company onto the company being acquired. The culture of the
acquiring company is also imposed (as much as possible) on the new entity. In a combination approach, the
leadership is more collegial and there is a knitting together of corporate cultures.
In a transformation approach, there is often inspirational leadership that seeks out new ideas and synergies more
than with any of the other approaches. There is often a new corporate culture that is sculpted from select parts
of the prior cultures. With a preservation approach, the leadership style is most effectively described as
respectful, with leaders of both companies retaining autonomy and with the cultures of both companies
remaining largely unchanged.
As with the other three dimensions of post-merger success, there are critical success factors for the execution of
IT integration that will help improve the odds of achieving the expected benefits. They are:
Execute the post-merger integration in a timely manner. The longer it takes, the lower the realized
value from the transaction
Develop, track and report on project performance metrics
Measure and publish realized benefits. This will establish goodwill in the newly merged entity going
forward.

Wrapping it Up
The M&A transaction process is not easy. It is fraught with pitfalls and roadblocks to achieving the expected
benefits that must be carefully navigated and overcome with skill and care to achieve the goal of one new,
(hopefully) improved organization from two separate, distinctly different companies. While there are many
hurdles that must be surmounted in any M&A transaction, the one that most frequently poses a challenge is
how to plan for and execute the post-merger IT systems integration. Consequently, proper selection and
execution of a post-close IT integration plan in a timely manner can help achieve any anticipated synergies
from the M&A transaction. Our experience indicates that the better the post-close planning and execution, the
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better to overall merger results, and that a key attribute to effective post-close integration is a high level of
integration between IT and the business.
To achieve this, effective IT due diligence and speed of integration are critical. Any post-merger integration
approach chosen should be guided by the M&A business objectives, and the selected approach (consolidation,
combination, transformation, or preservation) should match the business objectives and acquisition profile.
Each of these approaches has its individual characteristics, success factors, and potential causes of failure and
should be selected with a full understanding of which approach most effectively fits the particular M&A
transaction and which would work well with the IT integration issues uncovered in the due diligence process.
Each approach should be executed in a timely manner to realize the expected value from the transaction and
benefits should be tracked and championed throughout the new organization to promote acceptance of
transition to the new culture.
To improve the odds of achieving the expected benefits, it is very important to consider the four pillars of
M&A:
Set the strategydevelop and carry out the IT and business integration strategies in parallel.
Dont skip on the due diligenceform an IT integration team early on and cast a broad net to identify
potential issues and roadblocks to success.
Plan the post-merger IT integrationclosely align IT integration planning and execution with business
planning and execution.
Execute the post-close IT integration speedilyexecute fast and nimbly. The longer it takes, the lower
the realized value.
Following this path wont ensure that the expected benefits are achievednothing is guaranteed. However,
proper planning and execution of post-merger IT integration can make the process easier and more effective to
increase the likelihood of achieving the expected benefits in the long run. Thats a win-win deal.






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IMPACT ANALYSIS OF AUTOMOTIVE MERGERS AND ACQUISITIONS

RENAULT-NISSAN AUTOMOTIVE MERGER:
This alliance was struck in 1999 and Renault acquired 36.8 percent equity stake in Nissan, 22.5 percent stake in
Nissan Diesel and 100 percent in Nissans European Finance subsidiaries amounting to USD5.4 billion.
Renault and Nissan came together to improve their respective competitiveness. The alliance is based on the
principle that each company would retain its own identity while sharing resources. Renault supports Nissan in
Europe and South America, while Nissan is firmly entrenched in North America and Asia. Responsibilities are
shared for Africa and Middle East.
Through this relationship, the companies intended to maximize synergies through their complementary
strengths in product line-up, procurement, R&D, marketing, and personnel training, which would result in cost
reductions, greater global market penetration and other benefits through cooperation. As a member of this
strategic alliance, Renault would have access to up-to-the-minute technology, a worldwide network and
advanced managerial expertise.
The impact of this alliance has been beneficial. For example, Return of Equity (ROE) for Renault in 2002 and
2003, is attributed to the sharp increase in earnings of Nissan. The Nissan Revival Plan, which was started by
the group in 1999 was focused on profit and international reach has resulted in increased net income and
therefore an increase in ROE.
In addition, substantial cost savings have been achieved through a common purchasing strategy and by setting
up a common supplier base. Common platforms have been developed to reduce time for new product
introduction.
Cooperation is being stepped up in the development, use and sharing of common power train components
(engines and gearboxes). All these efforts have led to a decrease in working capital requirements and therefore,
an increase in cash flows which allowed the group to substantially decrease its outstanding debt. A reduction of
866 million in debt in 2001 is partly attributed to sale of the groups equity interests.
Renault and Nissan provide complementary market support to maximize global efficiency in marketing and
sales. As a result of such market focus, the alliance continues to grow in the three major markets of the US,
Europe and Japan while making inroads into other markets as well.
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The alliance has been able to increase its global market share up to 8.9 percent in 2003. Purchase full report
here. The transfer of chief operating officer, Carlos Ghosn, who revived Renault, to Nissan is one of the factors
that made this alliance successful.
Looking to the future, Renault expects the automobile market in 2004 to edge upwards in Europe and increase
slightly in other countries where it has a presence. It expects to benefit from cooperative ventures within the
alliance. In addition, Renault hopes to pursue its international development and will be looking to grow volumes
outside Western countries.
In early 2010, the Renault-Nissan Alliance was the 4th largest automotive group in the world. With350,000
employees and operations in 190 countries, the Alliance had sold 6.1 million vehiclesmore than 9% of the
world totaland taken in revenue of 86.5 billion (US$120 billion) in 2009.1 The Alliance had performed so
well over the past decade that it was widely touted as a model for successful partnership (All together now,
2010).
When news first broke about the alliance, auto executives dismissed it as the most improbable marriage in the
world (Thornton et al., 1999). Observers skeptically emphasized the contrast in national cultures, complexity of
the undertaking, and opposition from various stakeholders. In the latter stages of negotiations to form the
alliance, even Renault CEO Louis Schweitzer bleakly assessed the odds of reaching an agreement at 50/50
(Lauer, 1999a).
How was an agreement reached? What lessons can negotiators and managers draw from Schweitzer and
Renaults experiences not only during, but before and after these negotiations?
The story begins with the environmental imperatives that brought the parties to the negotiation table.









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CONDITIONS IN THE AUTO INDUSTRY

In 1998, world auto sales had been flat for 3 years. With reduced demand, huge overcapacity in production, and
strong competition from Japanese companies, the auto industry was consolidating in established markets,
namely, the U.S., Europe, and Japan. Analysts distinguished automakers as big players, likely [acquisition]
targets, and distressed or inefficient firms (e.g., respectively, GM and Toyota, Volvo and Honda, Fiat and
Nissan) (Vlasic et al., 1998). Generally placed in the third group, Renault was considered ripe for takeover.
Renault S.A. (hereafter Renault) produced a full range of cars, commercial vehicles and parts. The 2nd
largest automaker in France, and 10th largest in the world, Renault employed over 138,000 employees and
generated 31.7 billion ($35 billion) in revenue in 1997. The 100-year old company had Renault-Nissan
Negotiation 5 grown significantly after World War II but fell into a deep financial crisis in the early 1980s.
After 6 years of shock treatment involving plant closings, layoffs and divestitures, and a repeat round of
cost-reductions in 1997, the transformed company had in many ways turned the corner. At the same time, the
French government, which reduced its majority equity share in 1996, still owned 44.2% of Renault, and the
company remained heavily dependent on its home and nearby European markets.
Nissan Motor (Nissan) was Japans 2nd largest automaker. The internationally-oriented firm had production
sites in 22 countries and sales in over 180. Nissan spearheaded the Nissan Group which comprised hundreds of
subsidiaries and employed 130,000 people. With this workforce, the Group achieved substantially more than
Renault in consolidated net sales: 6,659 billion ($56 billion) in FY1998. A proud, 90-year-old organization,
Nissan had a longstanding reputation for engineering excellence. But in 1998, the company was floundering
competitively, burdened by debt, and losing money for the fifth time in 6 years.

Schweitzers Strategic View
Renaults president director generale (effectively, the Chairman and CEO) was Louis Schweitzer. He had joined
the company as Chief Financial Officer in 1986, after serving in the French ministries of finance and industry,
and played a central role in Renaults historic restructuring. Appointed CEO in 1992, he was 4 years into his
term when he ordered the 1997 round of cost reductions. While the move was controversial, Schweitzer was
later credited with restoring the companys reputation.
In 1998, Renault was in better shape than it had been for decades but its position in the world auto industry was
still precarious. Then in May, two major automakers, Daimler and Chrysler, announced a mega-merger. That
18

event shook Renaults top management into deeply questioning their companys future (Ghosn & Ris,
2003:173).
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Interests
Schweitzer and his team identified several key interests for the company:
improved global competitiveness in quality, cost and delivery.
accelerated internationalization of the company.
critical mass within the global auto industry.
a worldwide reputation for product innovation.
protecting domestic market share.
continued momentum as a revived enterprise.

While Schweitzers predecessors had targeted volume and profit, he wanted to shift the corporate focus to
quality. He was also determined to shrink Renaults 36-month R&D cycle to the 24-month cycle common in
Japan. Renault had no presence in the U.S. market, which represented 23% of the world total, and had either no
reputation or a poor one in Asia and other non-European markets. Schweitzer felt the company could capitalize
on its innovativeness in product design. Some interests were interconnected. For example, achieving critical
mass would work both to improve competitiveness and fend off attacks from hostile acquirers.
The Renault CEO had presided over the unconsummatedsome say failedmerger negotiations with Volvo
in 1989-93. As a matter of personal interest, he certainly had no desire to repeat that experience (Lauer, 1999a).

Options
Renault had two main strategic options: go it alone or join another major automaker. Renault held sufficient
cash reserves to fund its own entry into the U.S. and could continue to enter limited-scope agreements with
small automakers to plug operational deficiencies. However, these measures would neither accelerate
internationalization nor create sufficient scale in a short time horizon.
With respect to a major partnership, Renault did not have much to offer any of the worlds Top Five (GM, Ford,
Toyota, VW and DaimlerChrysler). Schweitzer and his team drew up a list of potential Korean and Japanese
partners but soon decided that the Korean companies had little to offer Renault. The team concentrated on
Japanese firms.
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Considering Nissan
Nissan had been the top Japanese automaker in the U.S. and top Asian automaker in Europe for decades, yet it
had lost both positions by 1998. It held only 5% of the U.S. market. Customers and analysts perceived Nissan
vehicles as dull and expensive. Beyond the red ink on its bottom line, Nissan suffered from a debt burden
represented by a 5 to 1 debt-equity ratio. The company had to cover approximately 4,600 billion ($33 billion)
in current liabilities by March 1999. On top of these problems, its business environment at home presented
various constraints and challenges for operations, including a virtually sacrosanct commitment to lifetime
employment.

From various sources of information, Renault executives could glean several Nissan interests:
debt relief.
protecting the Nissan identity and brand.
returning to profitability.
reestablishing a strong position in the critical U.S. market.
improving its competitiveness in Asia and Europe.
ensuring the companys long-term health.
preserving jobs.
developing an effective solution for debt-ridden Nissan Diesel.

Nissan Diesel was a truck and bus manufacturer in which Nissan Motor held a 39.8% share.
The president of Nissan Motor, Yoshikazu Hanawa, had been appointed to his position (effectively CEO) in
June 1996. Having spent 40 years at Nissan, he was a dedicated company man but also a strong-willed
leader. He had a personal interest in seeing his company recover and pull out of its current condition.

Pre-Negotiation Moves

Making Contact
In June 1998, a month after the DaimlerChrysler announcement, Schweitzer wrote Hanawa a letter broadly
proposing that they explore ways to enhance their companies competitiveness. Schweitzer sent a similar letter
to Mitsubishi Motors. However, Hanawa replied promptly.


21

Additional Preparation
Renault executives initially prepared to talk to Nissan about a limited collaboration such as a manufacturing tie-
up in Mexico. Schweitzers inner circle for the tightly guarded Pacific Project included Executive Vice-
Presidents (EVP) Georges Douin and Carlos Ghosn. Douin, who oversaw product and strategic planning and
international operations, conducted the early studies of potential Asian partners. Ghosn was a cost-cutting
expert who masterminded Renaults post-1996 restructuring. It did not take long for the group to look beyond a
one-country relationship with Nissan.
Renault and Nissan had many common and complementary interests. They were minnows living among
sharks trying to survive in the short term and thrive in the long term. Both CEOs were intent upon improving
their companies competitiveness, rebuilding the organizations, and enhancing the companies reputations.
At an operational level, EVP Douin (2002:3) concluded that the two companies had an almost miraculous
complementary relationship. Renaults emphasis on product innovation fit Nissans need to depart from dull,
undistinguished cars. Each company sought to strengthen its standing in the others strongest market: Nissan
wanted to recoup its position in Europe (and the U.S.) while Renault wanted to expand into Asia. The list went
on.
There were no previous conflicts between the two companies or CEOs to impede a relationship. Conversely,
there was no strong foundation on which to build. Moreover, while there were many examples of U.S.-Japanese
collaborations between automakers, there were no salient Franco-Japanese ventures. In Japan, according to
Douin (2002:3), the French had a poor image (as) not an industrial (power) arrogant, not very serious and
volatile. As a result, the Renault team felt they would have to prove themselves.

Nissans Options
To pursue Nissans interests, Hanawa had few appealing courses of action in June 1998. Additional borrowing
from commercial banks would have been costly due to Nissans low credit rating, Renault-Nissan Negotiation
9 issuing additional equity or selling shares to raise capital would be ill-timed since shares had depreciated by
50% in the past year, and spinning off Nissan Diesel and other subsidiaries would not raise sufficient cash.
Besides, these options would only satisfy creditors and not address fundamental strategic imperatives.
With respect to potential partners, the large Japanese automakersarch-rival Toyota and Hondaprobably
viewed Nissan as undesirable, and smaller Japanese companies could not afford or digest a large firm.
Meanwhile, the American majors GM and Ford were already allied with Toyota and Mazda, respectively. Ford
had collaborated with Nissan in a limited way on a mini-van project but was, by this point, actually managing
Mazda.

22


These conditions left Hanawa with the option of an internally led restructuring based on the Nissan Corporate
Planning Departments 1-month old Global Business Reform Plan and short-term assistance from fellow
members of Nissans industrial group, the Fuyo keiretsu. Given the scale and scope of Nissans needs, this was
a rather weak option. (Later on, Hanawas alternatives would improve at crucial points.)

Moving Forward
From the outset, Schweitzer eschewed the idea of pursuing a typical acquisition or merger with Nissan. He
believed key stakeholders and the Japanese public would oppose a foreign takeover. Instead, he envisioned an
alliancea subtle balancebetween the two companies.

Issues
The meta-issue for the companies to negotiate was the basic nature of a relationship. Specific agenda items
included the scope of their collaboration, their respective contributions, and an organizational structure.
Whatever the basic relationship, management control and equity valuations were bound to be Renault-Nissan
Negotiation 10 sensitive issues. Given Nissans history and prominence in Japans industrial sector, Hanawa
and his team would be protective of the company and determined to ensure that Nissan Motor had a future. At
the same time, while Renault had $2 billion in cash to spend, the companys financial history and government
supervision necessitated that Schweitzer proceed prudently.

The Negotiations
Its a question of seducing rather than imposing.
Hanawas reply to Schweitzers letter set in motion a series of communications and negotiations that lasted
from June 1998 to March 1999. This 9-month period may be divided into five phases:
1 Exploring Interest in Collaboration (June-July, 1998)
2 Identification of Possible Synergies (August-September, 1998)
3 Evaluation of Possible Synergies (October-December, 1998)
4 Striking the Deal (January-March 13, 1999)
5 Finalizing Details (March 14-27, 1999)




23


The Deal
The global partnership agreement signed by Schweitzer and Hanawa on March 27, 1999 committed Renault
and Nissan to cooperate to achieve certain types of synergies while maintaining their respective brand identities.
The strategic direction of the partnership would be set by a Global Alliance Renault-Nissan Negotiation 17.
Committee co-chaired by the Renault and Nissan CEOs and filled out with five more members from each
company. Financial terms included an investment of 643 billion ($5.4 billion) by Renault. For 605 billion of
the total, Renault received 36.8% of the equity in Nissan Motor and 22.5% of Nissan Diesel. With the
remaining 38 billion, Renault acquired Nissans financial subsidiaries in Europe. The agreement included
options for Renault to raise its stake in Nissan Motor and for Nissan to purchase equity in Renault. With respect
to management, Renault gained responsibility for three positions at Nissan (Chief Operating Officer, Vice-
President of Product Planning, and Deputy Chief Financial Officer). One seat on Renaults board of directors
was designated for Hanawa. At the alliance level, plans called for the formation of 11 cross-company teams to
work on key areas of synergy (e.g., vehicle engineering, purchasing, product planning) and to coordinate
marketing and sales efforts in major geographic markets.

Lessons
Automakers have negotiated international collaborations for decades and will continue to do so well into the
future, but the Renault-Nissan negotiation stands out in many ways. Many observers did not expect it to lead to
an agreement, let alone to a relationship that would become a model for industrial partnerships. So there are
important lessons for negotiators and negotiation analysts to draw from Renaults experience.
Beyond these examples, however, the Renault-Nissan negotiation offers six distinctive lessons:
Go beyond ostensible differences; probe parties interests and capabilities for fit.
Prepare extensively, continuously, and jointly as well as internally.
Consider conceiving a new (unusual) form of relationship.
Behave not only as a negotiator but also as a prospective partner.
Manage the influence of the counterparts no-deal alternative (options).




24


DATA ANALYSIS AND INTERPRETATION

Ques.1 Do you think IT has a role to play in managing the affairs of the company?
a. Yes
b. No


Ques.2 Do you think IT tools has reduced manual efforts?
a. Yes
b. No


35
70%
15
30%
Yes
No
40
80%
10
20%
Yes
No
25


Ques.3 Do you really think that IT enabled tools have helped in companies growth?
a. Yes
b. No
c. Cant say


Ques.4 At what levels IT enabled tools are used?
a. Top level
b. Middle level
c. Lower level
d. All levels



34
68%
10
20%
6
12%
Yes
No
Can't say
10
20%
15
30%
5
10%
20
40%
Top level
Middle level
Lower level
All levels
26


Ques.5 How cost effective IT system has proved to be in the company?
a. Expensive
b. Reasonable
c. Cheap


Ques.6 In which branch IT is utilized?
a. Finance
b. Marketing
c. Operations
d. All


30
60%
17
34%
3
6%
Expensive
Reasonable
Cheap
10
20%
9
18%
8
16%
23
46%
Fianace
Marketing
Operations
All
27


Ques.7 Does IT system play a role in Research & Development program of company?
a. Yes
b. No


Ques.8 Does IT plays a role in success of Merger & Acquisition?
a. Yes
b. No





45
90%
5
10%
Yes
No
40
80%
10
20%
Yes
No
28



CONCLUSION

Renault-Nissan is no longer able to rely on their previous strengths. Nine years after the 1999 alliance
we are once again being met with a transforming automotive industry.
In order to ensure their place as a future industry leader they must take immediate action.
Major trends seem to be concentrating on safety, environmental impact and technological integrations.
Renault-Nissan must incorporate another company in order to be successful. But instead of seeking
resources within the industry they must search for another channel.
As technology, safety, and environmental concerns become major influences in the automotive industry,
it is essential that Renault-Nissan look for a partner that will allow efficiencies to be achieved in this
changing industry.
IT plays an important role in the success of merger and acquisition.















29



BIBLIOGRAPHY


http://en.wikipedia.org/wiki/Renault%E2%80%93Nissan_Alliance
http://www.investopedia.com
http://www.pwc.com
http://www.imaa-institute.org/publications.html
http://www.hvacrbusiness.com



















30

QUESTIONNAIRE

Ques.1 Do you think IT has a role to play in managing the affairs of the company?
a. Yes
b. No
Ques.2 Do you think IT tools has reduced manual efforts?
a. Yes
b. No
Ques.3 Do you really think that IT enabled tools have helped in companies growth?
a. Yes
b. No
c. Cant say
Ques.4 At what levels IT enabled tools are used?
a. Top level
b. Middle level
c. Lower level
d. All levels
Ques.5 How cost effective IT system has proved to be in the company?
a. Expensive
b. Reasonable
c. Cheap
Ques.6 In which branch IT is utilized?
a. Finance
b. Marketing
c. Operations
d. All
Ques.7 Does IT system play a role in Research & Development program of company?
a. Yes
b. No
Ques.8 Does IT plays a role in success of Merger & Acquisition?
a. Yes
b. No