Mergers: What Can Go Wrong and How to Prevent It
John Wiley & Sons, New York, 2005
A powerful guide for seeking out the best acquisition and merger targets.
As increasingly more companies look to mergers and acquisitions (M&As) as a source of new growth and revenue, there is an even greater chance that these M&As will go bad. This insightful guide focuses on one of the most often debated and key issues in mergers and acquisitions-why some deals fail miserably and why others prosper. It provides a complete road map for what potential buyers should look for when picking a target and what characteristics of sellers they should steer clear of, as well as pitfalls to avoid during the M&A process. Real-world examples are provided of high-profile failures-Quaker Oats, United Airlines, Sears, and Mattel-and high-profile successes-General Electric and Cisco.
TABLE OF CONTENTS:
Chapter 1 Introduction to Mergers and Acquisitions
- Background and Terminology
- Merger Process
- Economic Classifications of Mergers and Acquisitions
- Regulatory Framework of Mergers and Acquisitions
- Antitrust Laws
- State Corporation Laws
- Hostile Takeovers
- Takeover Defense
- Leveraged Transactions
- Restructurings
- Reasoning for Mergers and Acquisitions
- Trends in Mergers
- Conclusion
- Case Study: Lessons from the Failures of the
- Fourth Merger Wave
Chapter 2 Merger Strategy: Why Do Firms Merge?
- Growth
- Examples of Growth as an Inappropriate Goal
- Using M&As to Achieve Growth
- M&As in a Slow-Growth Industry as a Way to Achieve Growth
- Synergy
- Merger Gains: Operating Synergy or Revenue Enhancements—Case of Banking Industry
- Industry Clustering
- Deregulation
- Improved Management Hypothesis
- Hubris Hypothesis of Takeovers
- Winner’s Curse and the Hubris Hypothesis
- Cross-Industry Deals and Hubris
- Diversification and CEO Compensation
- Diversification That Does Seem to Work Better: Related Diversification
- Merging to Achieve Greater Market Power
- Do Firms Really Merge to Achieve Market Power?
- Merging to Achieve the Benefits of Vertical Integration
- Special Cases of Mergers Motivated by Specific Needs
- Conclusion
- Case Study: Vivendi
Chapter 3 Merger Success Research
- Criteria for Defining Merger Success Using Research Studies
- Takeover Premiums and Control
- Initial Comment on Merger Research Studies
- Research Studies
- Mergers of Equals: Acquirers versus Target Gains
- Long-Term Research Studies
- Long- versus Short-Term Performance and Method of Payment
- Bidder Long-Term Effects: Methods of Payment
- Bidder’s Performance Over the Fifth Merger Wave
- Conclusion
- Case Study: Montana Power- Moving into Unfamiliar Area
Chapter 4 Valuation and Overpaying
- Valuation: Part Science and Part Art
- Valuation: Buyer versus Seller’s Perspective
- Synergy, Valuation, and the Discount Rate
- Financial Synergies and the Discount Rate
- Toe Holds and Bidding Contests
- Bidding Contest Protections
- Overpaying and Fraudulent Seller Financials
- Valuation and Hidden Costs
- Post merger Integration Costs- Hard Costs to Measure
- Conclusion
- Case Study: AOL Time Warner
Chapter 5 Corporate Governance: Part of the Solution
- Governance Failure
- Regulatory Changes
- Corporate Governance
- Managerial Compensation and Firm Size
- Managerial Compensation, Mergers, and Takeovers
- Disciplinary Takeovers, Company Performance, and CEOs and Boards
- Managerial and Director Voting Power and Takeovers
- Shareholder Wealth Effects of Mergers and Acquisitions and Corporation Acquisition Decisions
- Post-Acquisitions Performance and Executive Compensation
- CEO Power and Compensation
- Do Boards Reward CEOs for Initiating Acquisitions and Mergers?
- Corporate Governance and Mergers of Equals
- Antitakeover Measures and Corporate Governance
- Conclusion
- Case Study: WorldCom
Chapter 6 Reversing The Error: Sell-Offs and Other Restructurings
- Divestitures
- Decision: Retain or Sell Off
- Spin-Offs
- Involuntary Spin-Offs
- Defensive Spin-Offs
- Tax Benefits of Spin-Offs
- Shareholder Wealth Effects of Sell-Offs
- Rationale for a Positive Stock Price Reaction to Sell-Offs
- Wealth Effects of Voluntary Defensive Sell-Offs
- Wealth Effects of Involuntary Sell-Offs
- Financial Benefits for Buyers of Sold-Off Entities
- Shareholder Wealth Effects of Spin-Offs
- Corporate Focus and Spin-Offs
- Equity Carve-Outs
- Benefits of Equity Carve-Outs
- Equity Carve-Outs Are Different from Other Public Offerings
- Shareholder Wealth Effects of Equity Carve-Outs
- Under Which Situations Should a Company Do a Spin-Off versus an Equity Carve-Out?
- Shareholder Wealth Effects of Tracking Stock Issuances
- Conclusion
- Case Study: Daimler Chrysler
Chapter 7 Joint Ventures and Strategic Alliances: Alternatives to Mergers and Acquisitions
- Contractual Agreements
- Comparing Strategic Alliances and Joint Ventures with Mergers and Acquisitions
- Joint Ventures
- Motives for Joint Ventures
- Regulation and Joint Ventures
- Shareholder Wealth Effects of Joint Ventures
- Shareholder Wealth Effects by Type of Venture
- Restructuring and Joint Ventures
- Potential Problems with Joint Ventures
- Strategic Alliances
- Governance of Strategic Alliances
- Shareholder Wealth Effects of Strategic Alliances
- Shareholder Wealth Effects by Type of Alliance
- What Determines the Success of Strategic Alliances?
- Conclusion
- Case Study: AT&T