M&A

Question 1

Synergistic benefits from a firms own resources

Answer 1

Carpon & Pistre

• It’s the synergies between a firms own resources and another that will determine the benefits from M&A
• The difference between the value the first and second firms can add will determine price

Question 2

Under what conditions do relatedness result in abnormal returns for bidding firms

Answer 2

Barney (1988)

• ## An acquiring firms will only benefit if they have private and uniquely valuable synergistic cashflows

Question 3

3 main motivations for acquisition

Answer 3

Hayward & Hambrick (1997)

• There is an acquisition premium as a result of managerial hubris, they found using a sample of 106 firms
• Three main motivations for acquisition:
  1) Poor target company management
  2) Synergies
  3) Hubris

Question 4

Relatedness is assumed

Answer 4

Jemison & Sitkin

• It is often assumed that relatedness is enough for a good M&A, and this undermines the effort that is reuired to synergise the assets of the firms.

Question 5

Porter study

Answer 5

He studies 33 large US corporations, and found:

• 60% of acquisitions in new fields
• divestment rate for unrelated acquisitions was 75%
• M&A to diversify DOESN”T MAKE SENSE, because investors can diversify at a much lower cost.

Benefits of M&A:

• Portfolio management
• Restructuring
• Transferring skills
• Sharing Activities

Question 6

EXAMPLE OF HUBRIS

Answer 6

Berglas (2014)

Kenneth Lew, former CEO of Enron

Question 7

M&A as a capability

Answer 7

Trichterborn et al.

• They advise for the creation of a separate business unit in order to foster an environment that will develop M&A expertise.

Question 8

Empirical Evidence

Answer 8

Andrade et al.

• Mergers: Based on 4250 mergers between 1973 and 2000, there is a 38% premium paid on pre merger price.
• Acquisition: The share price of the acquiring firm increases by 1%, whilst the share price of the acquired firm increases by 16%

Moeller et al.

• Acquiring firms shareholders lost 12c per dollar spend on acquisition.
  Though this came as a result of a few very poorly performing firms

Question 9

spread of a new idea (4 elements)

Answer 9

Rodgers

1) Innovation itself
2) Communication channels
3) Time
4) Social systems