Mergers and Acquisitions Research Paper

2386 Words Sep 12th, 2005 10 Pages
Table of Contents
I. INTRODUCTION 1
II. MERGERS & ACQUISITIONS DEFINED 1
III. WHY M&A? 1
A. PERFORMANCE 1
B. MARKET FACTORS 2
C. METHODS 2
IV. ISSUES 2
A. CULTURE AND EMPLOYEES 3
B. LEADERSHIP 3
C. CUSTOMERS 3
D. VEBLEN AND GOODWILL 4
V. MAKING M&A SUCCESSFUL 4
A. COMPANY TYPE 4
B. IDENTIFICATION OF OPPORTUNITIES 5
C. SPEED OF INTEGRATION 5
D. CUSTOMERS 6
E. COMMUNICATION AND CULTURE 6
VI. CONCLUSIONS 6
VII. OBSERVATIONS 8
REFERENCES 9 I. Introduction
This paper presents the issues with mergers and acquisitions and discusses the methods to make M&As more successful in an attempt to determine if they are helpful or harmful to the companies, their shareholders, and the economy as a whole.
II. Mergers & Acquisitions
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Neoclassical economists depict business people, under the guiding hand of a benign market, striving to lower costs and bring the most cost-effective products to consumers. Veblen's theory, by contrast, assumes that business people scheme to obtain personal financial gain even at the expense of consumers and their own organizations. (Cornehls 2004)
In his article on corporate goodwill, Eric R. Hake utilizes Veblen's theory to explain the M&A activity in a bull market. Essentially, Hake contends that a bullish stock market and current accounting rules tend to favor firms that engage in excessive mergers by overvaluing companies based on goodwill (Hake 2004). This kind of overvaluation recently lead to some of the most famous corporate malfeasances of all time such as the scandals at Enron, WorldCom and the huge shareholder losses at AOL Time Warner (Cornehls 2004).
V. Making M&A Successful
Despite the problems with and failure rate of mergers and acquisitions, they seem unlikely to stop occurring. What, then, can be done to improve the success of the M&A process? There are a number of factors that contribute to the success of a merger which are discussed below.
A. Company Type
A study of the change in market value of companies that performed mergers and acquisitions over a 20 year period was conducted by Sara Moeller, Frederik Schlingemann, and Rene Stultz. The analysis found that the abnormal return on the acquisition of a public firm is a negative

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