Integrative Case 3.6

China Merchants Group’s Acquisition of the Newcastle Port

Hao Tan (University of Newcastle, Australia)

Why was China Merchants Group, a state-owned enterprise, able to successfully close the deal to acquire the Newcastle port of Australia?

On April 30, 2014, the world’s largest coal export port, the Newcastle port of Australia, changed hands. The owner of the Australian port, the new south wales state government, agreed to lease the port for 98 years to a consortium formed by the China Merchants Group (hereafter “Merchants”) and Australia’s Hastings Funds Management, for A$1.7 billion (US$1.57 billion). Over the lease period, the consortium will exercise control over the port, as well as the land, roads, railways, and other infrastructure within the wharf area, and will be entitled to earnings derived from the ports operations.

In the 2012- 2013 financial year, the Newcastle port exported 140 million tons of coal, worth A$15 billion (US$13.8 billion). The spot price of coal at the Newcastle Port is a benchmark for the international coal market. Given the significance of the port, the lease had attracted bidders from all over the world. These included Cheung Kong Infrastructure, owned by the Hong Kong tycoon Li Ka-Shing; China State construction; Deutschland Bank; and Macquarie Bank. The short term and long term financial benefits of this acquisition for Merchants remain to be seen. However, it’s successful bid will certainly create opportunities to further internationalize its infrastructure business, and synergies well with its existing shipping and port operations. Control of the Newcastle port will further help the company- a large state owned enterprise (SOE) from China- to play a more significant part in the global energy transport market.

Mergers and acquisitions in Western countries by china’s large SOEs have faced considerable political difficulties for a long time, especially for those mergers and acquisitions that concerned “strategic” assets in host countries. In 2009, an acquisition bid by the Aluminium Corporation of China (Chinalco) for Rio Tinto, of the top three global mining companies, failed. This was largely because of strong objections in Australia over concerns related to Chinalco’s state ownership. However, the acquisition of the Newcastle port by merchants appeared to generate much less criticism in Australia. After the announcement of the bidding outcome, the Australian media has been largely positive about the deal. For other Chinese companies that are considering to “go abroad”, there seem to be at least three lessons they can learn from the success of Merchants.

First, the acquisition came at a beneficial time, making it a win-win-win situation for the government, the local community, and the foreign investor. The acquisition came as a result of governmental changes in Australia, both at the state and the federal levels, from labor party control to that of the Liberal party. The new liberal government appealed to the public with plans to invest in new infrastructure. Many of those infrastructure projects had been long overdue in New South Wales and elsewhere in Australia. The Newcastle port acquisition will provide capital for some of those much-needed projects in the local area of Newcastle. Thus it is widely welcome by the government and the community. This is quite different from the bid of Rio Tinto by Chinalco a few years ago, where the Chinese company was perceived by many as a potential monopolist in the Australian resource sector seeking to take advantage of that period’s industry downturn.

Second, it appears that merchants had convinced the owner of the port and the Australian public that the motivation for its acquisition was a commercial rather than a political one. State ownership may be a winning factor for SOEs in China. However, it is often seen as a negative factor in foreign markets. Fully aware of this difference, merchants, and its bid efforts, had highlighted a range of commercial advantages of the company, such as is long experience in the shipping and port industries over the last 140 years; it’s current investments and management portfolio , with a number of large ports across continents; the related businesses of the company enabling operational synergies, including a super tanker fleet and the world’s largest container manufacturing business; and the governance of the company, as a Hong Kong-based and Hong Kong-listed company. As a result, the company’s industry expertise was well received and its state ownership less of a concern.

Finally, the bid of merchants had been greatly helped by its track record in developed countries, especially in Australia. Merchants had been operating in Australia for more than 20 years. It’s track record included acquisitions of Loscam Ltd. in 2010 and the Terminal link in 2013. Majority of the foreign investments made by merchant had proved successful, which had enhanced the positive image of the company as a responsible multinational corporate citizen. In other words, merchants was not a total stranger to Australia, which significantly reduced its liability of foreignness.

Of course, the confidence of the owner and the public in the host country not only relies on the good story the company tells, but also on its fundamentals, including its financial capabilities, as well as the conditions and terms of its bit. However, it is certainly important for the management of a multinational company to be able to frame and communicate effectively to various stakeholders the motivations and the consequences of its international mergers and acquisitions. As the philosopher Terrance McKenna used to say, “ The world is made of words.” The stories we receive affect how we understand and participate in the world. The stories a company can tell also affect whether it can reduce resistance in the host country, gain support from stakeholders, and eventually succeed in its internationalization endeavors.

In 150 words or more answer the follwing Case discussion question:

What are your recommendations for China Merchants Group to effectively manage and operate the Newcastle port after its acquisition?

The Walk Rite Shoe Company operates a chain of shoe stores. The stores sell ten different styles of inexpensive​ men's shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Walk Rite is trying to determine the desirability of opening another​ store, which is expected to have the following revenue and cost​ relationships:

Selling price $30.00

Unit variable cost per pair:

Cost of shoes $19.50

Sales commissions 1.50

Total variable costs $21.00

Annual fixed costs:

Rent $60,000

Salaries 200,000

Advertising 80,000

Other fixed costs 20,000

Total fixed costs $360,000

Requirements

​(Consider each question​ independently.)

Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Please be extremely descriptive on how you got the answer to this or no rating.

Year 0 1 2 3 4 5 6 Growth Rate NA NA NA NA 85.00% 42.50% 8.00% Dividends $0.00 $0.00 $0.00 $0.250 $0.463 $0.660 $0.713

Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value? Year 0 1 2 3 4 5 6 Growth rate NA NA NA NA 30.00% 15.00% 8.00% Dividends $0.000 $0.000 $0.000 $0.250 $0.325 $0.374 $0.404 ? a. $9.21 b. $9.29 c. $8.60 d. $10.75 e. $10.50

Agarwal Technologies was founded 10 years ago. It has been profitable for the last 5 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter. Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below. Assuming a required return of 11.00%, what is your estimate of the stock's current value?

Year: 0 1 2 3 4 5 6

Growth rate: NA NA NA NA 30.00% 15.00% 8.00%

Dividends: $0.000 $0.000 $0.000 $0.250 $0.325 $0.374 $0.404 ​

Question options: $8.60 $9.29 $10.50 $9.21 $10.75

Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March.

3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. For specific identification, the March 9 sale consisted of 55 units from beginning inventory and 185 units from the March 5 purchase; the March 29 sale consisted of 35 units from the March 18 purchase and 75 units from the March 25 purchase.

DO ALL 4!!!

4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 55 units from beginning inventory and 185 units from the March 5 purchase; the March 29 sale consisted of 35 units from the March 18 purchase and 75 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.)

June is a cash basis taxpayer, and is a fashion and makeup consultant in a high fashion company, Curlylocks, Inc. She earned a salary of $60,000. She also was provided a disability income protection policy for which Curlylocks paid a $1,500 premium for June's insurance. The company also provided health insurance for her which cost the company $15,000, and long term care insurance for her which Curlylocks paid a $1,000 premium. Her salary would have been $65,000, but she was paying off her school loan at $5,000/year and Curlylocks agreed to reduce her salary by $5,000 and to pay $5,000/year amount toward her school loan for her. The long-term care insurance policy was provided for all employees, to help to pay for future nursing home costs if needed, the health care and disability insurance were likewise provided for all. While her salary was $60,000, Curlylocks Inc. had a 401(k) plan and June voluntarily put $3,000 of her $60,000 salary, 5% of it, into her 401(k). Her employer Curlylocks matched that with a $3,000 contribution of its own money into her 401(k). What is June's taxable income from Curlylocks this year?June is a cash basis taxpayer, and is a fashion and makeup consultant in a high fashion company, Curlylocks, Inc. She earned a salary of $60,000. She also was provided a disability income protection policy for which Curlylocks paid a $1,500 premium for June's insurance. The company also provided health insurance for her which cost the company $15,000, and long term care insurance for her which Curlylocks paid a $1,000 premium. Her salary would have been $65,000, but she was paying off her school loan at $5,000/year and Curlylocks agreed to reduce her salary by $5,000 and to pay $5,000/year amount toward her school loan for her. The long-term care insurance policy was provided for all employees, to help to pay for future nursing home costs if needed, the health care and disability insurance were likewise provided for all. While her salary was $60,000, Curlylocks Inc. had a 401(k) plan and June voluntarily put $3,000 of her $60,000 salary, 5% of it, into her 401(k). Her employer Curlylocks matched that with a $3,000 contribution of its own money into her 401(k). What is June's taxable income from Curlylocks this year?

Elaborate from this list below who loses from Globalization and International Business:
Select one:
a. Governments lose sovereign rights when they join trade blocks.
b. The environment always loses as businesses pollute more and escape laws.
c. Low-wage earners lose in the developed countries, unless there are substantial re-training programs
d. Small companies lose as large businesses acquire more and more power
e. All of the above have some truth.

who are the investors from apple inc. ?

describes from apple inc.

Liabilities Contingences

bonds

Earnings per share

stockholders equity

Investments

Xin Xiao gets a text message from his dad from Guangzhou, who has a history of kidney stones, that a kidney stone has been found lodged in his the ureter associated with his right kidney. The resulted complete blockage of his right ureter, blocking the flow of urine out of the right kidney. What effect will this have on glomerular filtration rate for the kidney? Be specific as possible. How does this impact his left kidney AND does this have an overall impact on Xin Xiao’s dad’s urinary function (ie. Removal of wastes and urine production in general)?