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Mergers and acquisitions

We live in a fast-paced world which requires a total understanding of the business


environment in general and specific areas in particular.
In the last years, modern business has been dominated by mergers and acquisitions
present in any business newspaper or business news web page.
A merger is a corporate action where a new entity is created by exchanging the shares of
both companies for shares in the new company. !uc"ley, #hauri, $%%$&
!oth the companies involved in the merger cease to exist resulting into a combined new
company.
'n the other hand an acquisition requires the purchase by a company of another(s
company operations, the last becoming a subsidiary of the acquirer.
)he term *)a"eover+ is used when we refer to hostile acquisitions. !uc"ley, #hauri,
$%%$&
As the interest in this sub,ect has attract a large number of professional, the studies on
mergers and acquisitions are numerous and involve different aspects of the complex and
intricate process.
In an article published in $%%-, .artwright and /choenber tries to identify the reason for
which despite the really advanced research process focused on three fields0 organi1ational
fit, strategic fit and the acquisition process itself, the failure rates of mergers and
acquisitions have been constantly high. )he article discuss the probable causes of this
inconsistency and try to identify the remaining opportunities for research in M2A.
)heir results reflect three possible reason for which the M2A have lower success rates
even if the process of research is in continuing growing0
executives are underta"ing acquisitions driven by non-value maximi1ing motives
meaning that managers are motivated by their own interest rather than
shareholders and they discover also evidence of hubris when managers over-
valued the companies acquired.
the prescriptions from the academic research are not reaching the practitioner
community is not so well argumented due to the fact that researchers focus also
on management education and executive development programs
the research to date is incomplete in some way reflected by few meta-analyses
that stated that there is still much ground for M2A research to cover
A second article3ossi, 4olpin& focuses on the factors that determines mergers and
acquisitions in the business world by analy1ing a large sample of deals in 56 ma,or
countries that were announced in 7666 and completely in $%%$.
)he study reach the conclusion that differences in laws and enforcement explain the
intensity and the pattern of M2A. )heir number is significantly larger in countries with
better accounting standards and stronger shareholder protection which indicates that the
international mar"et for corporate control helps generate convergence in corporate
governance regimes across countries. Also hostile ta"eovers are more li"ely to ta"e place
in countries with better investor protection due to the fact that the private benefits of
control are reduce.
Another conclusion that derivates from the above research that the all-cash bid are lower
in countries with high level of shareholder protection thus, the transnational M2A target
countries with poorer investor protection than their acquirers+ countries.
A very important aspect regarding mergers and acquisitions for both involving companies
is the effects on the management especially for the acquired firm.
)he research of 8ames Walsh is based on the analysis of the top managers of the
companies acquired after 9 years from the date of acquisition.
)he results indicate firstly that the turn-over rates at the top level of the companies
acquired after the merger or acquisition have been completed are significantly higher than
the usual top management teams turnover rates.
Also the rates are higher for the most visible persons in the company-senior executive-
than for the lower levels of management.
A second discovery was that the differences in si1e between the companies involved in
the any type of merger or acquisition have no influence when it comes to the turnover
rates.
)his study managed to prove that indeed top management rates are higher after an M2A
but it failed to also provide the reason for this occurrence and future research should
focus at both individual and organi1ational level analysis.
:ext article /chwert, 766-& studies the correlations between the premiums in ta"eover
bids and the pre-announcement stoc" price runups. A runnup is a sudden increase
in price, especially of a stoc" and are usually temporary. )he research was effectuated on
an exchange-listed target firms from 76;9-7667. )he results are helpful in assessing the
trading costs but also to have a more complete picture of the crucial role of information
from public capital mar"ets to private M2A negotiations.
)he author reach the conclusion that the mar"ups- the difference between the cost of
a good or service and its selling price- have no significant liaison with the si1e of the
price or the volume of runups expressed before the announcement of the first bid.
)he last but not least article <ennings, =e, $%%%& aims to evaluate the effect of
complementarity of resources and compatibility of the firms in choosing the M2A as a
possible strategy of development.
)his effects are analy1ed through a multinomial logit model which focuses on two types
of events following M2A0 organi1ational dissolution and involvement in subsequent
M2As
)heir results show that the evolution of a firm that is the combination of two previously
independent firms is conditioned by their compatibility and complementarity.
)he complex phenomenon of mergers and acquisitions has attracted enormous interest in
the last past years and will continue to attract more in the future as the globali1ation is
more and more prominent and the world develops in an accelerate ritm.
/tudent0 'prisor #ilda
3eferences
!uc"ley, <. 8., 2 #hauri, <. :. >ds& $%%$&. International Mergers and
Acquisitions0 A 3eader. =ondon0 )hompson
.artwright, /usan and /choenberg, 3ichard, )hirty ?ears of Mergers and
Acquisitions 3esearch0 3ecent Advances and @uture 'pportunities, !ritish 8ournal of
Management 4olume 7;
=ee, Ayungmoo" and <ennings, 8ohannes, M>3#>3/ A:B A.CDI/I)I':/0
/)3A)>#I. - '3#A:IEA)I':A= @I) A:B 'D).'M>/7Dniversity of
<ennsylvania $%%% /teinberg Fall-Bietrich Fall
Walsh, 8ames, )'< MA:A#>M>:) )D3:'4>3 @'=='WI:# M>3#>3/
A:B A.CDI/I)I':/, /trategic Management 8ournal, 4ol. 6, 7;G-7HG 76HH&
#.William /chwert, Mar"up pricing in mergers an acquisitions, 8ournal of
@inancial >conomics, 4olume 57, Issue $, 8une 766-, <ages 79GI76$
3ossi, /tefano and 4olpin <aolo, .ross-country determinants of mergers and
acquisitions