Creating Value from Mergers and Acquisitions: The Challenges

✍ Scribed by Sudarsanam, Sudi

• Publisher: FT Press
• Year: 2010
• Tongue: English
• Leaves: 817
• Edition: 2nd ed
• Category: Library

✦ Synopsis

Creating Value from Mergers and Acquisitions is the first book to provide a comparative analysis of the M&A scene in Europe and the US, the two most active markets in the world. Now in its second edition it continues to develop an international and multidisciplinary perspective of M&A, and considers M&A as a process and not a mere transaction. The author draws upon economics, finance, strategy, law, organisational theories to formulate a five-stage model and emphasises the need to understand the interconnected nature of these stages. The book's central focus in on the challenges to using M&A as an instrument to create shareholder value, how M&A risks can be mitigated and how odds of success in acquisitions can me increased. Creating Value from Mergers and Acquisitions is suitable for those studying advanced undergraduate and MBA courses in industrial organisations, finance, business strategy, and corporate governance, as well as those preparing for professional exams.

✦ Table of Contents

Cover......Page 1
Creating Value from Mergers and Acquisitions The Challenges......Page 2
Contents......Page 8
Preface to the second edition......Page 14
Preface to the first edition......Page 17
Author’s acknowledgements......Page 20
Publisher’s acknowledgements......Page 22
Introduction......Page 28
Do mergers and acquisitions add or destroy shareholder value?......Page 29
Stage 1: How good is the corporate strategy development process?......Page 30
Stage 2: How well does the company organize for acquisitions?......Page 32
Stage 3: What are the pitfalls in deal structuring and negotiation?......Page 33
Stage 4: Don’t count the chickens yet! Post-acquisition integration......Page 35
Outline of the book......Page 36
Notes and references......Page 38
Part One Historic, Conceptual and Performance Overview of Mergers and Acquisitions......Page 40
Introduction......Page 42
The wave pattern of takeovers in the US......Page 43
Takeover activity in the European Union......Page 49
Historical overview of takeover activity in the UK......Page 53
Mergers in emerging markets......Page 57
Why do merger waves happen?......Page 58
Rational economic models of merger waves......Page 59
Impact of industry changes on M & A activity......Page 60
Behavioural models of merger waves......Page 66
Strategic implications of industry clustering of M & A......Page 68
Case Study: Pharmaceuticals suffer from the urge to merge......Page 69
Review questions......Page 71
Notes and references......Page 72
Introduction......Page 76
The economic perspective on mergers......Page 77
Industry analysis of competition......Page 81
Game theory and competitive moves......Page 84
Strategy perspective on mergers......Page 89
Dynamic capabilities and mergers......Page 96
Corporate and business strategies......Page 98
Finance theory perspective on mergers32......Page 99
Managerial perspective on mergers......Page 105
Organizational perspective on mergers......Page 106
Summary of the multiple perspectives on mergers......Page 107
Case Study: ‘The Best a Man or a Woman Can Get’ – P&G and Gillette bridge the gender gap in their brands!......Page 108
Overview and implications for practice......Page 109
Notes and references......Page 110
Introduction......Page 113
Defining success of mergers and acquisitions......Page 114
Measuring the impact of acquisitions on shareholder returns......Page 115
Review of stock market assessment of acquisition performance......Page 118
Results of empirical studies of merger impact on stock returns......Page 121
Assessing the operating performance of acquirers......Page 128
Post-merger performance of alternative corporate strategies......Page 134
Mergers, managers and corporate governance......Page 135
Post-merger performance and M & A deal characteristics......Page 136
Overview and implications for practice......Page 137
Notes and references......Page 138
Appendix 4.1: Abnormal returns methodology to study the impact of mergers on shareholder value......Page 140
Appendix 4.2: Studies cited in Tables 4.1 to 4.9......Page 144
Part Two Corporate strategy and organizing for acquisitions......Page 148
Introduction......Page 150
Motivations for horizontal mergers in mature industries......Page 151
Revenue enhancement through acquisition of complementors......Page 156
Cost savings as a source of value creation in acquisitions......Page 158
New growth opportunities as a source of value......Page 167
Resource-based view (RBV) of acquisitions and value creation......Page 168
Evidence of lack of sustainable competitive advantage......Page 174
Case Study: Heavy truckers trundle their way to market dominance......Page 176
Overview and implications for practice......Page 177
Notes and references......Page 178
Introduction......Page 183
Vertical integration......Page 184
Benefits and costs of buying in markets......Page 186
Benefits and costs of long-term contracts......Page 187
Benefits and costs of vertical integration......Page 189
Vertical mergers and value creation......Page 192
Empirical evidence on vertical mergers and their value effects......Page 193
Vertical mergers that blur industry boundaries......Page 194
Outsourcing through acquisitions......Page 197
Case Study: Hospital, heal thyself......Page 199
Overview and implications for practice......Page 204
Review questions......Page 205
Notes and references......Page 206
Introduction......Page 207
Pattern of conglomeration in different countries......Page 208
Why do firms diversify?......Page 211
Resource-based view of conglomerate acquisition......Page 214
Finance theory of conglomerate diversification......Page 216
Managerial perspective on conglomerate diversification......Page 219
Organizational perspective on conglomerate diversification......Page 221
Summary of alternative perspectives......Page 222
Review of empirical evidence on the value of conglomerate diversification......Page 223
Valuation of conglomerates in other countries......Page 228
Evidence on operating performance......Page 229
Is the internal capital market efficient?......Page 230
Case Study: Messier bets Vivendi on his grand vision and pushes it towards bankruptcy!......Page 235
Further reading......Page 239
Notes and references......Page 240
Introduction......Page 244
Recent trends in cross-border acquisitions......Page 245
Factors influencing cross-border mergers......Page 248
Why do corporations undertake cross-border acquisitions?......Page 251
Barriers to cross-border takeovers......Page 257
Post-acquisition integration......Page 261
Empirical and survey evidence on CBA performance......Page 263
Case Study: Cross-border acquisitions bring power to companies......Page 267
Overview and implications for practice......Page 268
Notes and references......Page 269
Introduction......Page 272
Types of strategic alliance......Page 274
International joint ventures......Page 277
Model of a joint venture......Page 278
Structuring a joint venture......Page 283
Performance evaluation of joint ventures......Page 286
Critical success factors in strategic alliances......Page 289
Choosing between an acquisition and an alliance......Page 290
Case Study: General Motors (GM) and Ford drive on different roads to same town......Page 292
Review questions......Page 293
Notes and references......Page 294
Introduction......Page 297
Rationale for corporate divestitures......Page 298
Forms of corporate divestiture......Page 301
Corporate sell-offs......Page 302
Corporate spin-offs......Page 309
Equity carve-outs......Page 319
Stock market arithmetically challenged in pricing equity carve-outs?......Page 322
Tracking stock......Page 323
Overview of the divestiture methods......Page 325
Case Study: Marriott’s bondholders taken for a spin (or for a ride?)......Page 326
Review questions......Page 328
Notes and references......Page 329
Introduction......Page 333
Leveraged buyout......Page 334
Organizational and legal structure of the private equity firm......Page 335
Types of LBO......Page 340
Overview of the LBO markets in the US and Europe......Page 342
Sources of LBO targets......Page 346
Exit from LBOs......Page 347
Organizing the buyout and role of the PE sponsor......Page 350
LBOs in major European countries......Page 359
Managerial motivations for an MBO......Page 362
LBO as a superior business organization......Page 363
Value creation performance of LBOs......Page 368
Future of the LBO market in the US and Europe......Page 371
Case Study: The tale of two stores: Safeway and Kroger......Page 372
Overview and implications for practice......Page 374
Notes and references......Page 375
Introduction......Page 378
Acquisition decision-making process: organizational perspective......Page 379
Acquisition decision process: psychological perspective......Page 382
Narcissistic CEOs and acquisitions......Page 386
Imitative acquisitions: institutional theory perspective......Page 388
Acquisition decision-making process: compensation incentive perspective......Page 389
Acquisition decision-making process: governance structure impact......Page 393
Managing acquisition decision-making......Page 399
Survey evidence on the acquisition process......Page 403
Case Study: Deutsche Boerse CEO and Chairman pay with their jobs for lesson on shareholder activism!......Page 405
Overview and implications for practice......Page 409
Review questions......Page 410
Notes and references......Page 411
Introduction......Page 416
Target selection process......Page 417
Strategic choices and acquisition......Page 418
Platform strategies......Page 427
Serial acquisitions......Page 429
Deal considerations......Page 431
Profiling desirable targets......Page 435
Case Study: How Beecham approached its merger with SmithKline Beckman......Page 438
Overview and implications for practice......Page 440
Notes and references......Page 441
Part Three Deal structuring and negotiation......Page 444
Introduction......Page 446
Sources of value in acquisitions......Page 447
Valuation models......Page 451
Estimating target equity value using the RI model......Page 455
Estimating target value using the PER model......Page 456
Enterprise value multiple......Page 461
Valuation using other multiples......Page 463
Discounted cash flow model......Page 464
Impact of tax on target valuation......Page 475
Real options framework for valuing targets......Page 476
Financial options and real options......Page 477
Case Study: ‘They also lose who only stand and wait’ – when option value is eroded by competition......Page 482
Overview and implications for practice......Page 483
Notes and references......Page 484
Appendix 14.1: Real options in mergers and acquisitions......Page 486
Introduction......Page 493
Types of business combination......Page 494
Accounting for business combinations......Page 495
Accounting for goodwill......Page 500
Overview and implications for practice......Page 506
Notes and references......Page 507
Introduction......Page 509
Methods of payment for acquisitions......Page 510
Tax aspects of acquisition financing......Page 513
Earnings dilution in a share exchange......Page 517
Valuation risk and payment currency......Page 523
Equity derivatives and risk management in equity offers......Page 524
Payment currency versus financing......Page 529
Leveraged cash financing......Page 530
Deferred consideration financing......Page 536
Factors determining financing method choice......Page 538
Empirical evidence on the impact of payment method on financial performance......Page 540
Case Study: Choosing the better acquirer: MCI faces a dilemma!......Page 545
Review questions......Page 549
Notes and references......Page 550
Introduction......Page 555
Economic rationale for antitrust regulation......Page 557
Assessing the effects of mergers on competition......Page 560
Competitive constraints on merging firms......Page 563
Merger regulation in the European Union......Page 564
The UK merger control regime......Page 572
Merger control procedures in the US......Page 578
Critique of merger control regimes......Page 582
Regulatory risk to M & A deals......Page 584
International Competition Network......Page 586
Case Study: William Hill takes a bet on Stanley Leisure and swallows OFT remedy......Page 587
Review questions......Page 590
Notes and references......Page 591
Introduction......Page 595
Takeover regulation in the UK......Page 596
European Union Takeover Directive......Page 610
Regulation of takeover bids in continental Europe......Page 615
Takeover regulation in the US......Page 617
Takeover regulation and takeover activity......Page 623
Case Study: UK Takeover Panel doesn’t buy the big MAC......Page 624
Overview and implications for practice......Page 625
Review questions......Page 626
Notes and references......Page 627
Introduction......Page 629
Role of advisers in acquisitions......Page 630
Role of investment banks......Page 631
Lawyers......Page 647
Other advisers......Page 648
Case Study: What are investment banks’ duties and to whom are they owed?......Page 649
Review questions......Page 651
Notes and references......Page 652
Introduction......Page 654
Bid strategies......Page 655
Bid tactics......Page 663
Developing a negotiation strategy......Page 664
Negotiating a friendly bid......Page 668
Post-acquisition integration and deal negotiation......Page 670
Hostile bid tactics......Page 673
Institutional investors and bid outcome......Page 674
Bid strategies and tactics in the US......Page 678
Empirical evidence on bid strategies and value creation......Page 682
Bid strategies and tactics in continental Europe: impact of the Takeover Directive......Page 684
Case Study: Mittal breaks Arcelor’s steely defence and becomes the Emperor of Steel!......Page 685
Overview and implications for practice......Page 690
Notes and references......Page 691
Bid resistance motives......Page 696
Bid defence strategies......Page 697
Impact of defensive strategies......Page 702
Takeover defences in continental Europe......Page 703
Takeover defences in the US......Page 710
Overview and implications for practice......Page 717
Case Study: State anti-takeover laws in the US and how they protect targets......Page 715
Notes and references......Page 718
Part Four Post-acquisition integration and organizational learning......Page 720
Introduction......Page 722
From strategy to integration......Page 723
A post-acquisition integration model......Page 725
Political and cultural perspectives on integration......Page 727
Change management perspective on post-acquisition integration......Page 736
Human resource management issues during integration......Page 738
Problems in integration......Page 743
Stages in the integration process......Page 749
Project management approach to integration......Page 750
What do managers think about acquisition integration and performance? Survey evidence......Page 752
Survey evidence on acquisitions and the human factor......Page 753
Critical success factors......Page 755
Case Study: Spanish conquistador arrives in England: Santander the new Armada?......Page 758
Overview and implications for practice......Page 762
Review questions......Page 763
Notes and references......Page 764
Introduction......Page 767
Do acquirers assess acquisition performance?......Page 768
What are the performance metrics?......Page 769
Organizational learning perspectives......Page 774
Exploitative and exploratory learning......Page 778
Acquisition-making as a core competence......Page 785
Case Study: Learning from past acquisitions......Page 787
Overview and implications for practice......Page 788
Notes and references......Page 789
Introduction......Page 792
Importance of the five-stage model......Page 793
Challenges in competitive strategy planning......Page 796
Challenges in organizing for acquisitions......Page 798
Challenges in deal structuring and negotiation......Page 799
Challenges in post-acquisition integration......Page 800
Challenges in post-acquisition audit and organizational learning......Page 802
Notes and references......Page 803
Index......Page 804