Mergers and Aquisitions Flashcards
Horizontal merger
merger of competing firms (producing close substitutes)
vertical merger
merger across supply chain!! (z.B. apple buying foxcon) - kann zu mehr Effizienz führen und ist besser für economy als horizontal merger
Conglomerate merger
Firms who are unrelated - neither compliments nor substitutes - wie Amazon buying supermarkets etc.
What is the merger puzzle?
many mergers are not profitable, disappointing or even bad for the companies. Paradox! There is no economic explanation, as it is mostly not in line with the profit maximizing assumption - gewinne steigen nur in 11% der observations (Tichy, 2001)
Why do we observe merger waves? (maybe not beantwortet)
Stock and bond market booms and merger waves are both driven by increases in optimism in financial markets
Why do firms merge regardless of high failure rate?
possible explanation is the structure of shareholders!! maybe a big shareholder also has a steak in a competing company and can increase his total profits w merger.
und Hybris!!
Can we observe market failure in merger market?
what are the empirical approaches to measure merger profitability?
event studies (financial econ) - abnormal reaction of stock prices around the announcement of an aquisition
outcome studies (IO) - firms economic performance and balance sheets before and after the merger
surveys of executives and case studies
(business)
What effects do mergers have on managers?
The threat of an aquisition can lead managers to aquire companies themselves (to be too big to be taken over), or to be highly profitable as to not be sold
What does a merger look like in the cournot framework (if market structure is given)
mergers are (often) unprofitable unless a very high proportion of the firms merge!
What does a generalization of mergers in a linear cournot model look like? How do you calculate it
compute the generalized profit function for n identical firms. number of merged firms (m) must be sufficiently high in order for the merger to be profitable (for profits to be bigger than the profits of the individual firms. n/m gives the ratio.
Additional Factors for mergers (not in cournot model)
- Heterogenous firms (spacial models) - consumer loyalty is important
- efficiency effects (cost reduction - static: quality, variety etc., dynamic(innovation etc)
- effects on market structure (killer aquisitions) - can’ measure how profit would’ve turned out without merger
- other motives than profit maximizing (psychological, political influence etc.)
What are behavioural motives for mergers?
- Hubris
- Herd behaviour
- Empire building
What is Hubris? What factors influence it?
Überschätzung, überoptimismus- Manager glauben sie werden besser sein als Zielfirma. - Glauben sie maximieren Profite
2: Faktoren: gender, age, experience
Herden verhalten im Zusammenhang mit mergern?
reaction to competitors and defensive aquisitions
Market for cooporate control hypothesis
threat of takeover & replacement constraints managers to persue own objectives other than profit maximizing
profit must be maximized at least so that market value is bigger than the value after aquisition minus the costs of aquisition! (so almost as profitable as the new owner could make it) (share value>share value after aqu - C/number of shares)
