Synergy theory holds that horizontal mergers and acquisitions (M&A) are conducted to obtain economies of scale. Horizontal M&A help companies re- structure assets and resources, thereby improving the efficiency of manage- ment. Technology diffusion from the same industry help companies com- plement each other in R&D and improve product quality and efficiency. In addition, horizontal M&A can eliminate duplicate labor and achieve efficient use of equipment, thereby reducing fixed production costs. Scholars have made fruitful researches on the motives of horizontal M&A, and tend to agree that companies can profit from horizontal M&A. There are mixed results of empirical research on the effect of horizontal M&A, and cases of M&A failure occur from time to time. Whether horizontal M&A can achieve the desired re- sults of managers? This paper chooses the horizontal M&A events between 1995 and 2005 when both sides of M&A are listed companies in the United States. Event study method is used to compare the volatility of stock prices in the event window of each participant to test the short-term performance of ho- rizontal M&A. The empirical results of this paper show that the stock market in the United States has responded about a week before the announcement date of horizontal M&A due to the lack of standardization of information disclosure or inadequate regulatory means. Horizontal M&A enhance the shareholder wealth of the targets in the short term, while cause loss of share- holder wealth of the bidders on the announcement day of M&A.
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M & A is an act of a company using cash, securities, or other assets to purchase all or most of the assets or shares of another company, in order to control the business and to deprive its legal personality or to change its legal entity -. The modes of merger and acquisition can be divided into horizontal mergers, vertical mer- gers and mixed mergers according to their industry relations. Horizontal mergers and acquisitions (also called transverse M & A) refer to the acquisition of companies in related businesses, whose products are the same with or are technology-related to the products of the merger companies . Vertical mergers and acquisitions (also known as vertical M & A) refer to acquisitions between companies which have input-output relations, they are buyers and sellers in the phase of producing and continuous selling . Mixed mergers and acquisitions refer to the mergers and acquisitions between unrelated parties, which fall out of the range of horizontal and vertical M & A . According to traditional economic theory, horizontal mergers and acquisitions enable enterprises to obtain economies of scale through reduced costs and improved production efficiency; vertical mergers help companies to reduce transaction costs; mixing acquisitions can help companies to avoid risks, expand scale and find new profit growth. Both vertical mergers and mixed mergers are cross industry mergers and acquisitions, but companies involved in mixed and acquisitions face greater obstacles and risks, higher merger cost due to heterogeneity of information barriers between different industries -. This paper will study and discuss the impact of interlocking directorates on the choices of merger object under these three acquisitions modes cases respectively.
acquisitions have considerably increased. Corporations employed such combination not only for the sake of competitiveness but to maintain a firm foothold in the industry as well. This has led to the significant transformation in the business landscape. Mergers and acquisitions have been long known to direct the merging entities towards positive synergies, enhanced re-sources and growth. Consolidation has been a significant strategic tool and has become a worldwide phenomenon, driven by advantages of scale economies, geographical diversification, and lower costs through branch and staff rationalization, cross border expansion and market share concentration. hence, overall increase in the profit statements. Mergers among different banks are classified as horizontal mergers. The deal is always expected to be beneficial for both merging firms.
Table 2 shows the results for each cohort using observations for all com- munity banks. The coefficient on ROA is significant at the 5-percent level for every year in the sample. The negative coefficient indicates that as ROA increases, the probability of being acquired declines. The coef- ficient on the efficiency ratio is positive as expected in every year except 2014, but it is not significant in explaining whether a bank is acquired in any year. The insignificance of the efficiency ratio may reflect that it is important for only a small number of acquisitions when simultaneously accounting for the effect of ROA, which was shown to be the dominant variable in the classification tree analysis.
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The present era of globalised economy, demands innovative ways for a business to sustain itself in the increasingly competitive market. Mergers and Acquisitions is a common strategy for business sustainability .One of the foremost prominent highlights of mergers is that they come in waves that are correlated with increment in share prices and prices/earnings ratios. Mergers and Acquisitions have become the major drive in shifting tides in global economic scenario.
Many of the recent transactions occurred when an institution faced imminent failure—its capital was deteriorating rapidly and the firm was in danger of failing in a matter of days. In these instances, “failure” means that the institution is unable to meet its obligations, such as repayment of short term loans or withdrawals. Absent government involvement in a disposition of the assets, such a situa- tion could very well meet the test for a “failing firm” under the Horizontal Merger Guidelines. Under the Guidelines, a failing firm is one that: (1) “would be unable to meet its financial obligations in the near future,” (2) “would not be able to reorganize successfully” in Chapter 11 bankruptcy, (3) has in good faith, but unsuccessfully, tried to find an alternative purchaser that would “pose a less severe danger to competition,” and (4) the assets of which would exit the relevant market absent the acquisition. 21 When the Antitrust Division concludes that a firm satisfies all four elements of the
Thus, removing the FERC as a merger enforcer removes one source of inconsistency. It does not resolve all sources of the inconsistencies. The FTC and the DOJ continue to both enforce mergers in electricity. Table 3 shows the number of HSR filing that the DOJ and the FTC received from the years 2006 to 2014 for utility companies, which include electric, gas, and sanitary services companies. While the FERC has only review power over a subsection of these mergers, the results show interesting patterns. Table 3 shows the number of clearances to investigate that were granted by one antitrust agency to the other. Clearances are granted in about 10% of cases. In other words, in 90% of cases the DOJ and FTC keep investigating in parallel or at least did not yield jurisdiction.
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This paper explores the issue of institutional trading in the Chinese market, where unlike in the US or other developed markets, institutional investors in China own a lower proportion of the equity market. In particular we study this issue in the context of mergers and acquisitions in Chinese market where there is a potential of severe interest conflict between institutions and controlling shareholders. This paper follows Brickley, Lease and Smith Jr. (1988) classification, and focus on mutual funds, who have less business ties with their firms underlying their investments and thus are more likely to trade based on the information collected on certain corporate event, such as Merger & Acquisitions.
We examine the impact of cross-border mergers on acquirers’ post-merger default risk using a sample of 375 US acquiring firms from 1997 to 2011. After controlling for cultural, institutional, geographic and managerial factors between the US and target firm countries, we find that on average, cross-border transactions decrease the level of default risk of the acquiring firms. Our results are consistent with the asymmetric information hypothesis that managers take advantage of the overvaluation and volatility of their stock prices. We also observe that the geographic distance and industrial relatedness play significant roles in affecting post-merger default risk but find limited evidence indicating the relevance of institutional environments and cultural factors on changes in default risk. We find that option compensation increases the risk-taking motives of managers in high risk firms. Another significant finding is that managers use cross-border mergers to manage the extant risk of their firms.
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When looking at the origin of acquirers (Graph II.1.4) further differences between the euro-area countries are noteworthy. Firstly, most of the larger countries show a clear fall in the number of deals concluded between the pre-crisis period of 2006/2007 and the following three crisis years. Secondly, the reduction in M&A activity appears to have affected domestic and international transactions to a similar extent. One notable exception to this observation is the case of Spain and (to a lesser extent) the Netherlands, which saw a relative shift towards domestic acquisitions at the expense of deals featuring a foreign buyer from another euro-area country. Thirdly, looking at an extended sample that includes smaller euro-area countries (not depicted) further shows that M&A activity in smaller economies’ banking sectors is typically
Effect of Profitability: Firms investing higher amounts can replace older capital stock and technologies with superior ones. A firm that saves and reinvest its earning can remain market leader (Brozen, 1951). A firm may either get finance from banks in the form of loan or it can reinvest its profit. But theory of internal financing suggests that taking loan requires firm’s long term commitment and can be risky. Therefore firm’s generating sufficient cash flow will be able to finance their new investments. Danzon et al. (2007) while studying determinants of M&A in pharmaceutical industry expected positive relationship between cash to sales and acquisitions but later found this relation to be insignificant. Thus, they argued that financing is no constraint on M&A activity. Dessyllas and Hughes (2005) also studying determinants of M&A in high tech industry find profitability to be positively and significantly related to firm’s decision to acquire. In Indian context Narayanan (2004) also asserted that in post deregulation period firms reinvest their profits on technological acquisitions. Andrade and Stafford (2004) also noted that profitability doesn’t play a significant role in firm’s decision on merger investment but it does impact non-merger investment positively.
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This study focuses on Indian M&A activity for the period 2001–2015. We have only taken domestic transactions, and publicly listed companies are both target and acquirer. The details of each transaction were extracted from the Mergers and Acquisitions Database of Thomson Reuters. The data includes deal value, percentage of shares sought, held & acquired and owned after the transaction, nationality of both target & Acquirer Company and industry of each acquirer and target, deal attitude, consideration structure and amount, stock price of the acquirer on the day of announcement and one day after announcement. There are 106 deals under study only including domestic transactions.
Over the years, airlines operating in a deregulated market environment have also devised innovative tactical and strategic alliances and business ventures in an attempt to survive in a very competitive global market. Applying economic theory, it is this author’s view that but for historical, protectionist ownership and control rules which are in place in most jurisdictions, major airlines around the globe would consolidate even further – vis-à-vis cross-border mergers and acquisitions.
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The fifth wave was a common result of the first four waves and is referred to as the most evolved stage of mergers. The mergers of the first wave were relatively basic and horizontal. In the second wave, mergers began to change direction and became more vertically in both directions subsequently antitrust regulations putting limits on mergers. In the third wave, a new shape of conglomerate mergers took stage and different from the fourth wave of more debt- based structure, the fifth wave was the reflection of the globalized economy through international mergers especially with the development of the European Union and the erosion of nationalistic barriers as the continent moved to a unified market structure with a common currency (EU Competition Law, 2010). Most of all were between many different sectors of airline, automotive, banking, petroleum, and the Internet.
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However, the emergence of the Spanish MNC was embedded in a more complex setting. Specifically, the atypical geographical (i.e. Latin America) and sector (i.e. predominance of banking and utilities) distribution of Spanish cross border investments responded to the inability (and unwillingness) of MNCs from the so-called ‘Triad’ countries (US, Japan and Western Europe) to increase their stocks of FDI in Latin America. Some sectors where Spanish MNCs were absent in Latin America (such as consumer goods and pharmaceuticals) were part of the global dominance of MNCs based ‘Triad’ countries and this dominance also helps explaining geographic and sector concentration of Spanish acquisitions in Latin America. However, along side the apparent concentration of Spanish acquisitions in Latin America being limited to a few countries and few markets, trends in cross border mergers and acquisitions involving Spanish firms also suggested there were significant investments in Latin America by Spanish MNC, which went beyond utilities and banking. For instance, there were significant investments in many other areas such as railroads, road construction, oil and gas, etc. In the following section these trends are reassessed to examine the statistical significance of the determinants of FDI investment decisions. In this process, the analysis will shed light as to whether the competitive advantage of Spanish firms in Latin America was different from that at home and the extent to which these decisions responded to Dunning’s (1993; 2000) resource-seeking, market-seeking and efficiency- seeking FDI as measured by market size (M ij ), wage effects (W ij ) and 'cultural affinity'
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Cornett, Tanyeri and Tehranian (2011) develop a model of investor anticipations of both bidder and target firm candidacy by incorporating multiple merger motives (generate shareholder value and generate opportunistic benefits for managers) using a two-stage framework. They investigate if investors can anticipate bidder and target merger candidacy. They also examine if investor anticipations about candidacy affect the stock price responses to merger announcements and hence distribution of value between bidder and target firm shareholders. They use a sample of non-financial US merging and non-merging firms for 26 years from 1979 to 2004. Mergers used in the study are completed deals that transfer control rights from the target to the bidder firm in which at least one of the two firms are publicly traded. A firm is identified as a bidder (target) in a given year if it proposes (solicits) at least one bid in the next year. Their final sample is 98,554 firm years (4,964 firm years for bidder subsample; 2,830 firm years for target subsample and 90,760 firm years for non-merging subsample). In their model investors cannot directly observe managerial motives. Instead, they observe merger announcements. They find that investors predict bidder firms more accurately than target firms. This asymmetry in investor anticipations about merger candidacy causes disparity in bidder and target firm announcement period abnormal returns. The difference in merger anticipation may account for documented higher magnitude of target firm CARs than bidder CARs.
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These factors that influence acquirer decisions are related to WACC of the combined firm. Leverage is determined by weight of debt and weight of equity in the capital structure of a firm. Thus, it is affected by changes in either debt or equity. It increases (decreases) with the level of debt (equity) in the capital structure. According to the trade-off theory of capital structure, firms have target debt levels which are reached when they trade off tax benefits of debt financing against financial distress costs (Modigliani and Miller, 1963) and agency costs of debt (Jensen and Meckling, 1976).We argue that in the case of acquisitions, target leverage of the combined firm, where WACC is minimized, is not necessarily the same as target leverage of the acquirer. Since method of payment is the most effective tool in hand that can be used to adjust the capital structure of the combined firm, it takes an influential role in determining its WACC and therefore NPV of the acquisition.
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Mergers and acquisitions are important operations that happen nowadays. The goal of such processes is to “conquer” new markets and benefi t from their resources (natural or human), or to lower competition (by acquiring a competitor or merging with it). More and more studies are written on this subject, thing that makes people interested in it have a diffi cult job in staying up to date. That is why the present research had as a goal to evaluate and summarize the latest trends in the study of this subject. Based on our goal we have conducted an extended analysis on the studies published in 2014 in this fi eld. Additionally, we have also descriptively analyzed the period 2010–2014. For this, we have presumed that the most important research is to be found in the ISI- Thomson Web of Knowledge. We point out the lack on such literature on the developing countries, as most of these studies are related to the developed ones, such as the USA, the UK, China or Germany. The major part of them is published in the Journal of Corporate Finance. The second part of the article comes to emphasize the most important ideas that are to be found in the 2014 fi eld’s literature. Many of the studies are related to the banking sector. Additionally, we found new indexes created to evaluate the M&A performance or the concentration degree of the market due to and after M&A operations. There are papers that assess different theories, such as the merger waves theory, the concentration-fragility hypothesis, the too-big-to-merge, too-big-to-succeed or, too-big-to-fail theories and so on.
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To make sure that the latter results are not driven by the subsample of value-destroying acquisitions the CAARs to customer, competitors and suppliers are investigated separately for the subsamples of value-creating and value-destroying M&A deals. The results from the analysis are reported in Table 3.6, Panel M for the value-creating and Panel N for the value- destroying subsamples of M&A deals. The analysis shows that suppliers which primarily operate in the acquirer’s states appear to suffer significantly from the announcement of both value-creating and value-destroying acquisitions. For example, the state Dependent Suppliers experience -5% (Table 3.6, Panel M) and -3.5% CAAR (Table 3.6, Panel N) over the (-10, 10) event window for the subsamples of value-creating and value-destroying M&A deals respectively. In addition, the competitors of the acquisition industry enjoy a positive CAAR as a result of the announcement of deals which are either perceived positively or negatively by investors. Over the (-1, 0) window, the CAAR to competitor portfolios amounts to 1.47% (Table 3.6, Panel M) and 0.82% (Table 3.6, Panel N) for the acquisitions with positive and negative announcement market reaction respectively. These results demonstrate that the observed valuation effects on suppliers and competitors are not driven by the sub-sample of value-eroding acquisitions. In addition, when considering the order of magnitude of the CAARs to the rival and supplier portfolios, the evidence shows that the returns which accrue to suppliers are significantly more negative, and the returns which accrue to rivals significantly more positive, for the subsample of M&A deals with positive market reaction. These results provide further support for the validity of the buyer power hypothesis, according to which both the merging firms and their rivals gain as a result of increased industry consolidation and this takes effect at the expense of their suppliers. 28
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Mergers and Acquisitions (M&As) are an alluring way for companies to cut costs and achieve synergistic financial gains in a growing global market. While profits are the measure of success in M&As, the driving force behind the success or failure rests on the human resources of the companies. The recent reports suggest that 50 to 80% of mergers fail because of an inability to integrate people into a cohesive new entity. It is well-recognized that merging organizations' cultural integration is one of the most crucial and arduous tasks in a merger. When the collective identity of the organization is challenged, the post-merger trauma can be significant to employees and managers. As a result, the organization suffers from employees with poor morale, lack of trust, decreased commitment and attitudinal problems.