A Performance Analysis On A Basis Of Horizontal Merger And Acquisition Of Iron And Steel Enterprises

There are two approaches in respect of pursuing development strategies of modernenterprises. One is that an enterprise can gradually stand out from the rest duringcompetition through its own accumulation. The other is that it can gain a competitiveadvantage through capital operation mode, e.g. merger, acquisition and restructuring.Throughout history of development of the world economy, especially in thecapital-intensive and resource-intensive industries, almost all enterprises become theking by means of merger, acquisition and restructuring. The history about enterprisemerger and acquisition in China is short, furthermore the merger and acquisition ofenterprises is propelled by the government initially and starts slowly and gently. Thusthe strong force to promote merger, acquisition and restructuring of enterprises can bealways attributed to governmental guidance. Emphasis should be apparently laid onmerger, acquisition and restructuring of iron and steel industries strengthened bygovernment from Development Policy of Iron and Steel Industries in2005to Plan onAdjustment and Revitalization of Iron and Steel Industries in2009, until “The TwelfthFive-Year Plan”. China has a low concentration and an unreasonable product structurein its iron and steel industries. The merger, acquisition and restructuring of iron andsteel industries in China have appeared one after another since the end of the20thcentury up to now. However, a perfect theoretical system on qualitative evaluation ofenterprise’s merger and acquisition performance is not established in China because it isin a special transition period of economic environment and additionally there is a pooreffectiveness in securities market.The case that A Iron and Steel Company will merge, acquire and restructure B Ironand Steel Company is presented in this paper after explanation of research background,research significance, research method and relevant theories. The performance ofmerger and acquisition can be analyzed by means of financial analysis. The analytical content contains such four dimensions as debt paying ability of an enterprise, operationability, profitability, and development ability. In each dimension, three financialindicators are chosen respectively including asset-liability ratio, current ratio, quickratio, receivables turnover ratio, inventory turnover ratio, total asset turnover ratio,return on equity, sale gross profit rate, per share earning total assets growth rate, returnon net assets and net profit growth rate. The financial report data of four consecutivefiscal years from A Iron and Steel Company and B Iron and Steel Company are sampled.With comparison of analysis of financial indicators between A Iron and Steel Companyand B Iron and Steel Company before and after merger and acquisition in fourconsecutive years, it shows that horizontal merger and acquisition has a differentperformance influence on a sponsoring merger and acquisition enterprise and a targetmerger and acquisition enterprise. The influence caused by merger and acquisition on asponsoring merger and acquisition enterprise is less remarkable than that on a targetmerger and acquisition enterprise. In conclusion, there are some issues on performanceof horizontal merger and acquisition of iron and steel enterprises in China. On a basis ofthe analysis of the above-mentioned problems, a few suggestions helpful to enhance theperformance of horizontal merger and acquisition of future iron and steel enterprises inChina will be put forward in this paper.