Mergers and Acquisitions: reasons and consequences at the international market

Résumé du document

The paper deals with the issue of 'Mergers and Acquisitions' in the western market, viewing the topic from the standpoint of their failures and successes. The subject is an extremely important one at present, as, on one side, there is a trend towards major international mergers and acquisitions, and, on the other side, multiple researches indicate that more than half of the deals are failures. Having done the research on the main factors of the failures of 'Mergers and Acquisitions', it was concluded that companies fail in closing deals, as they neglect the interests of their shareholders and are often driven by their own interests and motives. While shareholders are interested in financial flows that can generate a particular transaction, managers often overpay for the target, by mistake and sometimes even intentionally, and thus transfer wealth to the target company. Secondly, managers pay often in stock rather than in cash, communicating in such a way to shareholders indicates the company's insufficient liquidity. It has been determined the causes of failures, which affect company's shareholders. The content of the paper tells about how shareholders have an uncanny knack to react immediately to sudden changes in corporate structures, by pushing up or by pulling down the stock prices. Although, there exists numerous motives for Mergers and Acquisitions, companies must always set in advance the ultimate goal of value creation for their shareholders.

Extraits

[...] In a period of 1880–1990 mergers and acquisitions took place mainly in the United States. However, after the increased globalisation started in 1993, mergers and acquisitions were practiced in all the developed countries with a large number of strong corporations and well functioning economies: the United States, Japan, United Kingdom, France, Germany, Italy, Spain, etc. The experts define five the most expressed waves of mergers and acquisitions in the United States: 1882 1903: horizontal integration. The first merger wave featured a transformation of the American economy from one of many small companies to larger, monopolistic firms dominating an industry. [...]

[...] The first wave of mergers and acquisitions came to end in 1903 with a crash of capital markets 1929: growing concentration. The second wave of mergers and acquisitions in the USA was forced by a repeated economic boom after the First World War and by structuring of new industries (electricity and automobile, in particular). This wave featured many of the same types of horizontal transactions as the first wave, but also had a good percentage of vertical transactions. While the first wave was a mergers toward monopoly period, the second wave was a mergers toward oligopoly period, since in the beginning of 20th century American Government introduced the anti-monopolistic regulation. [...]

[...] Moreover, creation of new corporate integrations was accompanied by destruction of earlier created conglomerates. In the beginning of 80's there appeared a tendency of hostile acquisitions. Taking into account the mitigation of an antimonopoly policy, in this period increased horizontal mergers 2000: era of cross-border and mega-mergers. The fifth merger wave began in approximately 1992 as the economy began to recover from the 1990-1991 recession. While the past four merger waves were largely limited to the United States, large-scale mergers and acquisitions finally made their way to Europe in the mid-90. [...]

[...] Therefore shareholders and management's interests are convergent and directed to maximisation of cash flows and value creation. Graph: Evolution of accounting lever of major industrial and commercial companies (indebtedness / stocks in accounting amount) Finally, the shareholders may have as well some way of monitoring the performance of their managers, and managers may, in turn control the performance of their employees. Thus a company might employ efficiency experts to examine the operation of its management. Managers may create such a communication flow with non- managers so that also be able to control their operation. [...]

[...] Such strategic transactions undertake a transfer of assets and liabilities from one company to another and cause changes in financial structure, management board, corporate culture, market share, etc. A ‘merger' and an ‘acquisition' have slightly different meanings. Acquisition is an occasion when one company buys another or a part of another company in order to have absolute or partial ownership rights over it. While “acquisition” is a general term, applied to describe the fact of capital transfer from one company to another, has a narrower meaning. [...]