International Finance and Capital Markets: Babcock International Group PLC - Essay Example

The company has the desire to acquire China COSCO Holdings Company Limited, which is mainly a logistics and shipping supplier company. The acquisition plan is evaluated to examine whether it will be a success for both companies. Babcock International had been planning for expansion internationally for the past few years. However, they were targeting the Chinese market in particular. The acquisition plan has been in the negotiation stage and thus there is a need for providing the Board of Directors of Babcock International with recommendations from the financial director regarding the collaboration with COSCO.

The cross-border acquisition brings several issues like the exchange rate risk along with the cross-border trade. The plan is evaluated by evaluating the solvency, liquidity, and profitability position of both companies. The balance sheet of the companies is compared to decide on the collaboration plan. The recent acquisitions of Babcock International are also examined to evaluate the strength of the company and get an idea of whether it is capable of the acquisition of COSCO.

Introduction Babcock International Group PLC is an established company in the United Kingdom that is part of the European Union (EU). The European economy is the world’s largest importer globally in 2011 (16.4%). It is also the largest exporter in the world, exporting 15.4% of all the exports across the globe. Rules and regulations are very strict in the EU which possesses restrictions on companies at different levels of business. Thus Babcock needs to obey the rules and regulations of the country and take decisions regarding the acquisition of China COSCO.

The EU also provides investors with a unique market for investment after passing the Markets in Financial Instruments Directive (MiFID) in 2008. Mergers and acquisitions are viewed as the change agent for any company. The action is taken for expanding or contracting the basic operation of the firm which is also known as corporate restructuring. There are different types of acquisition which include cross border, local country, and home country acquisition. Babcock is panning for cross-border acquisition as it is deciding to acquire China COSCO which is a leading logistics and shipping Supplier Company in China.

The acquisition plan of China COSCO by Babcock will be successful if the following conditions are fulfilled: 1) The creditors and the properties of China COSCO are protected by courts. 2) Babcock has clear knowledge regarding China COSCO. 3) The growth of China COSCO encourages rapid market penetration of China. 4) The entry barriers are considerably high. 5) The cultural difference between UK and China are low. 6) Babcock is relatively larger than the size of China COSCO. 7) Babcock can take the risk of acquisition. 8) Babcock has experience in the local markets of China. 9) Babcock is quite late in entering China market (Clark, 2002) The above conditions are necessary to be fulfilled if the acquisition has to be successful. Babcock has had a plan for entering the markets of China for a long time. The proposal of the acquisition is examined by evaluating the financial strengths of both companies. The benefits of the investors are also concentrated upon.