Patrick A. Gaughan
Maximizing Corporate Value through Mergers and Acquisitions
Patrick A. Gaughan
Maximizing Corporate Value through Mergers and Acquisitions
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Solid guidance for selecting the correct strategic basis for mergers and acquisitions
Examining how M&A fits in corporate growth strategies, Maximizing Corporate Value through Mergers and Acquisitions covers the various strategic reasons for companies entering mergers and acquisitions (M&A), with a look at those that are based on sound strategy, and those that are not. Helps companies decide whether M&As should be used for growth and increased corporate value Explores why M&A deals often fail to deliver what their proponents have represented they would Explains which types of M&A work best…mehr
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Solid guidance for selecting the correct strategic basis for mergers and acquisitions
Examining how M&A fits in corporate growth strategies, Maximizing Corporate Value through Mergers and Acquisitions covers the various strategic reasons for companies entering mergers and acquisitions (M&A), with a look at those that are based on sound strategy, and those that are not.
Helps companies decide whether M&As should be used for growth and increased corporate value
Explores why M&A deals often fail to deliver what their proponents have represented they would
Explains which types of M&A work best and which to avoid
With insider guidance on what boards of directors should be aware of when evaluating proposed deals, Maximizing Corporate Value through Mergers and Acquisitions provides a sound foundation for understanding the risks involved in any mergers and acquisitions deal, before it's too late.
Examining how M&A fits in corporate growth strategies, Maximizing Corporate Value through Mergers and Acquisitions covers the various strategic reasons for companies entering mergers and acquisitions (M&A), with a look at those that are based on sound strategy, and those that are not.
Helps companies decide whether M&As should be used for growth and increased corporate value
Explores why M&A deals often fail to deliver what their proponents have represented they would
Explains which types of M&A work best and which to avoid
With insider guidance on what boards of directors should be aware of when evaluating proposed deals, Maximizing Corporate Value through Mergers and Acquisitions provides a sound foundation for understanding the risks involved in any mergers and acquisitions deal, before it's too late.
Produktdetails
- Produktdetails
- Wiley Finance Series .
- Verlag: Wiley & Sons
- 1. Auflage
- Seitenzahl: 352
- Erscheinungstermin: 22. April 2013
- Englisch
- Abmessung: 235mm x 157mm x 24mm
- Gewicht: 666g
- ISBN-13: 9781118108741
- ISBN-10: 1118108744
- Artikelnr.: 36875818
- Wiley Finance Series .
- Verlag: Wiley & Sons
- 1. Auflage
- Seitenzahl: 352
- Erscheinungstermin: 22. April 2013
- Englisch
- Abmessung: 235mm x 157mm x 24mm
- Gewicht: 666g
- ISBN-13: 9781118108741
- ISBN-10: 1118108744
- Artikelnr.: 36875818
PATRICK A. GAUGHAN is President of Economatrix Research Associates, an economic and financial consulting firm with offices in New York City; Newark, New Jersey; and Miami, Florida. Gaughan holds a PhD in economics and is a graduate professor of economics and finance at the Silberman College of Business at Fairleigh Dickinson University in New Jersey. He is also the author and/or editor of eight other books.
Preface xiii CHAPTER 1 Merger Growth Strategy 1 Strategy and M&A 2
Introduction to M&A 4 Background and Terminology 5 Hostile Takeovers 5
Takeover Defense 8 Leveraged Transactions 10 Restructurings 12 Trends in
Mergers 14 Notes 20 CHAPTER 2 Growth through Mergers and Acquisitions 21 Is
Growth or Increased Return the More Appropriate Goal? The Case of
Hewlett-Packard 21 M&A Must Fit the Strategy--Not the Other Way Around 24
Strategy Should Not Be Just M&A 25 Organic Growth or Growth through M&A 25
Acquisition and Development versus Research and Development 26 Can M&A Be
Effectively Used to Buy Growth? 30 Success in Core Business Does Not Always
Translate to Success with M&A Strategy: Focus onMicrosoft 31 Growth through
Bolt-On Acquisitions 31 Knowing When to Exit a Business 35 From Growth
through M&A to Growth through Organic Expansion 36 Controlling the Runaway
Dealmaker CEO 38 Using M&A to Achieve Growth in a Slow-Growth Industry 40
Squeezing Out Growth in a Slow-Growth Industry Using Multiple Options 40
Dealing with a Slow-Growth Business and Industry 42 Geographical Expansion
through M&A 46 International Growth and Cross-Border Acquisitions 47 Taking
Advantage of Currency Fluctuations to Pursue High-Growth M&A 47 Finding
Growth in High-Growth Markets 49 Cyclical Companies Achieving Growth in
Recessed Markets 50 Notes 52 CHAPTER 3 Synergy 53 What Is Synergy in the
Context of M&A? 53 Achievement of Synergy: A Probabilistic Event 55 Types
of Synergy 58 Industries' Pursuit of Cost Economies 65 Research on
Operating Economies in M&A 69 Economies of Scope 70 Scope Economies and the
One-Stop Shop 72 Copycat Following of Another Firm's Foolish M&A Strategy
74 Cost Economies in Banking Mergers: United States versus Europe 75
Internationalization Theory of Synergy and Information-Based Assets 79
Notes 89 CHAPTER 4 Diversification 91 Diversifying M&A in the Conglomerate
Era 91 Modern-Day U.S. Conglomerates 92 Portfolios of Companies 95
Theoretical Basis for Diversification 98 Applying Portfolio Theory to
Conglomerates? 99 Diversification and the Acquisition of Leading Industry
Positions 100 Achieving a Number One or Two Ranking Is Not a Panacea 102
Diversification to Enter More Profitable Industries 102 Empirical Evidence
on Diversification 103 Empirical Evidence on the Acquisition Programs of
the 1960s 103 How Likely Is It That Diversifying Acquisitions Will End Up
Being Sold Off? 104 Is There a Diversification Discount? 105 Focus
Hypothesis 106 Types of Focus Increases 106 Focus-Increasing Asset Sales
Raise Value 107 Explanation for the Diversification Discount 107 Related
versus Unrelated Diversification 108 Why Are Very Diversified Companies
Allowed to Form? Beware of the Empire Builders 111 Do Managerial Agendas
Drive M&A? 113 Notes 114 CHAPTER 5 Horizontal Integration and M&A 117
Advantages of Holding the One and Two Position in the Industry 117 Benefits
of Size: Spotlight on the Mobile Telecommunications Industry 119 Motivation
to Increase Size 122 Competitive Pressures of Competitors' M&A Program 122
Horizontal Deals: Acquisitions of Competitors and Their Competing Brands
124 Sprint-Nextel Horizontal Deal: One of the Worst in M&A History 125
Declining Industry Demand Necessitating Industry Consolidation 128
Synergistic Gains and Horizontal M&A 129 Net Benefits of Horizontal Deals =
Synergistic Gains - (Easy to Measure Costs + Hard to Measure Costs) 133
Horizontal Merger Success, Target's Size, and Post-M&A Integration Costs
134 Mergers of Equals 136 Mergers of Equals and Challenges of Integration
137 Mergers-of-Equals Research: Acquirers versus Target Gains 139
Competitive Advantages of Horizontal Deals: Case Study--InBev and
Anheuser-Busch 139 Regulatory Concerns on Merger Integration 141 Horizontal
M&A and Market Power: An Economic Perspective 143 Empirical Evidence on
Whether Firms Pursue M&A to Achieve Market Power 145 Countervailing Power,
Industry Concentration, and M&A 147 Horizontal Integration, Consolidation,
and Roll-Up Acquisition Programs 155 Notes 156 CHAPTER 6 Vertical
Integration 159 Benefits of Vertical Integration 159 Risk and Vertical
Integration 159 Vertical Integration as a Path to Global Growth 160 How
Owning Your Own Supplier Can Be a Competitive Disadvantage 163 Vertical
Integration as a Natural Outgrowth of a Business 165 Vertical Integration:
A Growth Strategy? 168 Continually Reevaluating a Vertical Integration
Strategy 173 Regulation of Vertical Integration 176 Copycat Vertical
Integration 177 Note 178 CHAPTER 7 Growth through Emerging Market M&A 179
Economic Condition of Major Economies in the Postsubprime World 180
Low-GrowthMarkets' Diminishing Returns 181 Role of Demographics 182 The
Next 11 183 M&A Is Not Always the Best Way of Accessing High-Growth Markets
184 High-Growth Regions and Countries 185 Risks of EmergingMarkets 208
Entering Large Slow-Growth Markets Instead of Fast-Growth Emerging Markets
210 Reducing Country M&A Risk: Investing in Local Companies That Engage in
Substantial Emerging Market M&A 211 Finding Growth in High-Growth Markets
213 Emerging Market Acquirer 216 China and Its Emerging Market Acquirers
218 Notes 220 CHAPTER 8 Joint Ventures and Strategic Alliances as M&A
Alternatives 221 Contracts versus Joint Ventures 222 Potential Problems
with Joint Ventures and Strategic Alliances 222 Shareholder Wealth Effects
of Joint Ventures 224 Shareholder Wealth Effects by Type of Venture 225
Relatedness and Size 226 Market's Assessment of Risk of Joint Ventures 227
Strategic Alliances 227 Strategic Alliance Process 228 Shareholder Wealth
Effects of Strategic Alliances 229 Shareholder Wealth Effects by Type of
Alliance 229 Notes 230 CHAPTER 9 Role of Corporate Governance in M&A 233
Agency Cost Problem 233 CEO Compensation and Agency Costs 235 Do
Shareholders Get Value for the High Compensation Paid to U.S. CEOS? 237
Board Characteristics and CEO Compensation 238 Benchmarking and How Boards
Determine CEO Compensation 239 Are the High Paid Superstar CEOs Simply
Worth the Money? Not 240 Are CEOs Paid for Luck? 241 CEO Compensation and
M&A Programs 241 Do Boards Pay CEOs for Doing M&A? 241 Do Boards Punish
CEOs for Doing Bad M&As? Case of Rio Tinto 242 Golden Parachutes and M&A
243 CEO Severance Payments 243 Are CEOs Evaluating M&A by Thinking, "What's
in It for Me?" 244 CEO Overconfidence and M&A 244 Are Overconfident CEOs
Good for Anything? 245 Management Compensation and Post-Acquisition
Performance 245 Role of the Board of Directors 246 CEO Tenure, Board
Composition, and the Disciplinary Effects of Takeovers 257 Antitakeover
Measures 257 Corporate Governance and the Divestiture Decision 259 Notes
259 CHAPTER 10 Downsizing: Reversing the Error 263 Analyzing the Strategic
Fit of a Business Unit 266 Market Conditions 267 Regulatory Concerns 267
Divestiture Likelihood and Prior Acquisitions 267 Another Option: Equity
Carve Out 268 Another Option: Spinoff 269 Spinoff or Equity Carve Out:
Which Option Is Better? 270 Another Option: Split-Off 272 Tax Effects 272
Shareholder Wealth Effects of Selloffs 272 Round Trip Wealth Effects 274
Spinoffs as a Means of Increasing Focus 274 Differences in Types of Focus
Increases 275 Shareholder Wealth Effects of Spinoffs: United States versus
Europe 278 Corporate Governance and Selloffs 279 Managerial Ownership and
Selloff Gains 280 Activists and Selloffs 280 Market Liquidity and the
Decision to Sell a Unit 280 Involuntary Selloffs 281 Voluntary/Involuntary
Selloffs 281 Voluntary Defensive Selloffs 282 Tracking Stocks 283 More
Drastic Solutions: Voluntary Bust-Ups 285 RecentMajor Exceptions to
Positive Shareholder Wealth Effects of Selloffs 286 Notes 289 CHAPTER 11
Valuation and Merger Strategy 291 Financial versus Nonfinancial Buyers 291
Target and Bidder Valuation Effects 293 What Types of Acquiring Firms Tend
to Perform the Poorest? 295 Premiums 295 Historical Trends in Merger
Premiums 296 Stock Market Activity and Merger Premiums 297 Stock
Market-Driven Acquisitions 298 Determinants of Acquisition Premiums 298
Premiums from Strategic Mergers 298 Hubris and Merger Premiums 299 Early
Research 300 Later Research 300 Winner's Curse Hypothesis of Takeovers 301
Campeau's Mega-Bust 302 Research on Winner's Curse of Takeover Contests 304
Market Performance, Valuation, and Takeover Probability 304 Deal Size and
Shareholder Wealth 305 Valuation Analysis and Source of the Flaws in Bad
Deals 306 Comments of the Residual Value 308 Free Cash Flows 308 Cost
Cutting and Historical Free Cash Flows 309 Growth Rate for Projection 310
Capitalization Rates and the Exit Multiple 310 Discount Rate 311 Whose
Capital Costs Are We Measuring? 313 Using the Build-Up Method 313
Short-Term Interest Rate Trends 315 Using Comparables 316 Public versus
Private Acquirers 316 Public versus Private Sellers 318 Notes 321 About the
Author 325 Index 327
Introduction to M&A 4 Background and Terminology 5 Hostile Takeovers 5
Takeover Defense 8 Leveraged Transactions 10 Restructurings 12 Trends in
Mergers 14 Notes 20 CHAPTER 2 Growth through Mergers and Acquisitions 21 Is
Growth or Increased Return the More Appropriate Goal? The Case of
Hewlett-Packard 21 M&A Must Fit the Strategy--Not the Other Way Around 24
Strategy Should Not Be Just M&A 25 Organic Growth or Growth through M&A 25
Acquisition and Development versus Research and Development 26 Can M&A Be
Effectively Used to Buy Growth? 30 Success in Core Business Does Not Always
Translate to Success with M&A Strategy: Focus onMicrosoft 31 Growth through
Bolt-On Acquisitions 31 Knowing When to Exit a Business 35 From Growth
through M&A to Growth through Organic Expansion 36 Controlling the Runaway
Dealmaker CEO 38 Using M&A to Achieve Growth in a Slow-Growth Industry 40
Squeezing Out Growth in a Slow-Growth Industry Using Multiple Options 40
Dealing with a Slow-Growth Business and Industry 42 Geographical Expansion
through M&A 46 International Growth and Cross-Border Acquisitions 47 Taking
Advantage of Currency Fluctuations to Pursue High-Growth M&A 47 Finding
Growth in High-Growth Markets 49 Cyclical Companies Achieving Growth in
Recessed Markets 50 Notes 52 CHAPTER 3 Synergy 53 What Is Synergy in the
Context of M&A? 53 Achievement of Synergy: A Probabilistic Event 55 Types
of Synergy 58 Industries' Pursuit of Cost Economies 65 Research on
Operating Economies in M&A 69 Economies of Scope 70 Scope Economies and the
One-Stop Shop 72 Copycat Following of Another Firm's Foolish M&A Strategy
74 Cost Economies in Banking Mergers: United States versus Europe 75
Internationalization Theory of Synergy and Information-Based Assets 79
Notes 89 CHAPTER 4 Diversification 91 Diversifying M&A in the Conglomerate
Era 91 Modern-Day U.S. Conglomerates 92 Portfolios of Companies 95
Theoretical Basis for Diversification 98 Applying Portfolio Theory to
Conglomerates? 99 Diversification and the Acquisition of Leading Industry
Positions 100 Achieving a Number One or Two Ranking Is Not a Panacea 102
Diversification to Enter More Profitable Industries 102 Empirical Evidence
on Diversification 103 Empirical Evidence on the Acquisition Programs of
the 1960s 103 How Likely Is It That Diversifying Acquisitions Will End Up
Being Sold Off? 104 Is There a Diversification Discount? 105 Focus
Hypothesis 106 Types of Focus Increases 106 Focus-Increasing Asset Sales
Raise Value 107 Explanation for the Diversification Discount 107 Related
versus Unrelated Diversification 108 Why Are Very Diversified Companies
Allowed to Form? Beware of the Empire Builders 111 Do Managerial Agendas
Drive M&A? 113 Notes 114 CHAPTER 5 Horizontal Integration and M&A 117
Advantages of Holding the One and Two Position in the Industry 117 Benefits
of Size: Spotlight on the Mobile Telecommunications Industry 119 Motivation
to Increase Size 122 Competitive Pressures of Competitors' M&A Program 122
Horizontal Deals: Acquisitions of Competitors and Their Competing Brands
124 Sprint-Nextel Horizontal Deal: One of the Worst in M&A History 125
Declining Industry Demand Necessitating Industry Consolidation 128
Synergistic Gains and Horizontal M&A 129 Net Benefits of Horizontal Deals =
Synergistic Gains - (Easy to Measure Costs + Hard to Measure Costs) 133
Horizontal Merger Success, Target's Size, and Post-M&A Integration Costs
134 Mergers of Equals 136 Mergers of Equals and Challenges of Integration
137 Mergers-of-Equals Research: Acquirers versus Target Gains 139
Competitive Advantages of Horizontal Deals: Case Study--InBev and
Anheuser-Busch 139 Regulatory Concerns on Merger Integration 141 Horizontal
M&A and Market Power: An Economic Perspective 143 Empirical Evidence on
Whether Firms Pursue M&A to Achieve Market Power 145 Countervailing Power,
Industry Concentration, and M&A 147 Horizontal Integration, Consolidation,
and Roll-Up Acquisition Programs 155 Notes 156 CHAPTER 6 Vertical
Integration 159 Benefits of Vertical Integration 159 Risk and Vertical
Integration 159 Vertical Integration as a Path to Global Growth 160 How
Owning Your Own Supplier Can Be a Competitive Disadvantage 163 Vertical
Integration as a Natural Outgrowth of a Business 165 Vertical Integration:
A Growth Strategy? 168 Continually Reevaluating a Vertical Integration
Strategy 173 Regulation of Vertical Integration 176 Copycat Vertical
Integration 177 Note 178 CHAPTER 7 Growth through Emerging Market M&A 179
Economic Condition of Major Economies in the Postsubprime World 180
Low-GrowthMarkets' Diminishing Returns 181 Role of Demographics 182 The
Next 11 183 M&A Is Not Always the Best Way of Accessing High-Growth Markets
184 High-Growth Regions and Countries 185 Risks of EmergingMarkets 208
Entering Large Slow-Growth Markets Instead of Fast-Growth Emerging Markets
210 Reducing Country M&A Risk: Investing in Local Companies That Engage in
Substantial Emerging Market M&A 211 Finding Growth in High-Growth Markets
213 Emerging Market Acquirer 216 China and Its Emerging Market Acquirers
218 Notes 220 CHAPTER 8 Joint Ventures and Strategic Alliances as M&A
Alternatives 221 Contracts versus Joint Ventures 222 Potential Problems
with Joint Ventures and Strategic Alliances 222 Shareholder Wealth Effects
of Joint Ventures 224 Shareholder Wealth Effects by Type of Venture 225
Relatedness and Size 226 Market's Assessment of Risk of Joint Ventures 227
Strategic Alliances 227 Strategic Alliance Process 228 Shareholder Wealth
Effects of Strategic Alliances 229 Shareholder Wealth Effects by Type of
Alliance 229 Notes 230 CHAPTER 9 Role of Corporate Governance in M&A 233
Agency Cost Problem 233 CEO Compensation and Agency Costs 235 Do
Shareholders Get Value for the High Compensation Paid to U.S. CEOS? 237
Board Characteristics and CEO Compensation 238 Benchmarking and How Boards
Determine CEO Compensation 239 Are the High Paid Superstar CEOs Simply
Worth the Money? Not 240 Are CEOs Paid for Luck? 241 CEO Compensation and
M&A Programs 241 Do Boards Pay CEOs for Doing M&A? 241 Do Boards Punish
CEOs for Doing Bad M&As? Case of Rio Tinto 242 Golden Parachutes and M&A
243 CEO Severance Payments 243 Are CEOs Evaluating M&A by Thinking, "What's
in It for Me?" 244 CEO Overconfidence and M&A 244 Are Overconfident CEOs
Good for Anything? 245 Management Compensation and Post-Acquisition
Performance 245 Role of the Board of Directors 246 CEO Tenure, Board
Composition, and the Disciplinary Effects of Takeovers 257 Antitakeover
Measures 257 Corporate Governance and the Divestiture Decision 259 Notes
259 CHAPTER 10 Downsizing: Reversing the Error 263 Analyzing the Strategic
Fit of a Business Unit 266 Market Conditions 267 Regulatory Concerns 267
Divestiture Likelihood and Prior Acquisitions 267 Another Option: Equity
Carve Out 268 Another Option: Spinoff 269 Spinoff or Equity Carve Out:
Which Option Is Better? 270 Another Option: Split-Off 272 Tax Effects 272
Shareholder Wealth Effects of Selloffs 272 Round Trip Wealth Effects 274
Spinoffs as a Means of Increasing Focus 274 Differences in Types of Focus
Increases 275 Shareholder Wealth Effects of Spinoffs: United States versus
Europe 278 Corporate Governance and Selloffs 279 Managerial Ownership and
Selloff Gains 280 Activists and Selloffs 280 Market Liquidity and the
Decision to Sell a Unit 280 Involuntary Selloffs 281 Voluntary/Involuntary
Selloffs 281 Voluntary Defensive Selloffs 282 Tracking Stocks 283 More
Drastic Solutions: Voluntary Bust-Ups 285 RecentMajor Exceptions to
Positive Shareholder Wealth Effects of Selloffs 286 Notes 289 CHAPTER 11
Valuation and Merger Strategy 291 Financial versus Nonfinancial Buyers 291
Target and Bidder Valuation Effects 293 What Types of Acquiring Firms Tend
to Perform the Poorest? 295 Premiums 295 Historical Trends in Merger
Premiums 296 Stock Market Activity and Merger Premiums 297 Stock
Market-Driven Acquisitions 298 Determinants of Acquisition Premiums 298
Premiums from Strategic Mergers 298 Hubris and Merger Premiums 299 Early
Research 300 Later Research 300 Winner's Curse Hypothesis of Takeovers 301
Campeau's Mega-Bust 302 Research on Winner's Curse of Takeover Contests 304
Market Performance, Valuation, and Takeover Probability 304 Deal Size and
Shareholder Wealth 305 Valuation Analysis and Source of the Flaws in Bad
Deals 306 Comments of the Residual Value 308 Free Cash Flows 308 Cost
Cutting and Historical Free Cash Flows 309 Growth Rate for Projection 310
Capitalization Rates and the Exit Multiple 310 Discount Rate 311 Whose
Capital Costs Are We Measuring? 313 Using the Build-Up Method 313
Short-Term Interest Rate Trends 315 Using Comparables 316 Public versus
Private Acquirers 316 Public versus Private Sellers 318 Notes 321 About the
Author 325 Index 327
Preface xiii CHAPTER 1 Merger Growth Strategy 1 Strategy and M&A 2
Introduction to M&A 4 Background and Terminology 5 Hostile Takeovers 5
Takeover Defense 8 Leveraged Transactions 10 Restructurings 12 Trends in
Mergers 14 Notes 20 CHAPTER 2 Growth through Mergers and Acquisitions 21 Is
Growth or Increased Return the More Appropriate Goal? The Case of
Hewlett-Packard 21 M&A Must Fit the Strategy--Not the Other Way Around 24
Strategy Should Not Be Just M&A 25 Organic Growth or Growth through M&A 25
Acquisition and Development versus Research and Development 26 Can M&A Be
Effectively Used to Buy Growth? 30 Success in Core Business Does Not Always
Translate to Success with M&A Strategy: Focus onMicrosoft 31 Growth through
Bolt-On Acquisitions 31 Knowing When to Exit a Business 35 From Growth
through M&A to Growth through Organic Expansion 36 Controlling the Runaway
Dealmaker CEO 38 Using M&A to Achieve Growth in a Slow-Growth Industry 40
Squeezing Out Growth in a Slow-Growth Industry Using Multiple Options 40
Dealing with a Slow-Growth Business and Industry 42 Geographical Expansion
through M&A 46 International Growth and Cross-Border Acquisitions 47 Taking
Advantage of Currency Fluctuations to Pursue High-Growth M&A 47 Finding
Growth in High-Growth Markets 49 Cyclical Companies Achieving Growth in
Recessed Markets 50 Notes 52 CHAPTER 3 Synergy 53 What Is Synergy in the
Context of M&A? 53 Achievement of Synergy: A Probabilistic Event 55 Types
of Synergy 58 Industries' Pursuit of Cost Economies 65 Research on
Operating Economies in M&A 69 Economies of Scope 70 Scope Economies and the
One-Stop Shop 72 Copycat Following of Another Firm's Foolish M&A Strategy
74 Cost Economies in Banking Mergers: United States versus Europe 75
Internationalization Theory of Synergy and Information-Based Assets 79
Notes 89 CHAPTER 4 Diversification 91 Diversifying M&A in the Conglomerate
Era 91 Modern-Day U.S. Conglomerates 92 Portfolios of Companies 95
Theoretical Basis for Diversification 98 Applying Portfolio Theory to
Conglomerates? 99 Diversification and the Acquisition of Leading Industry
Positions 100 Achieving a Number One or Two Ranking Is Not a Panacea 102
Diversification to Enter More Profitable Industries 102 Empirical Evidence
on Diversification 103 Empirical Evidence on the Acquisition Programs of
the 1960s 103 How Likely Is It That Diversifying Acquisitions Will End Up
Being Sold Off? 104 Is There a Diversification Discount? 105 Focus
Hypothesis 106 Types of Focus Increases 106 Focus-Increasing Asset Sales
Raise Value 107 Explanation for the Diversification Discount 107 Related
versus Unrelated Diversification 108 Why Are Very Diversified Companies
Allowed to Form? Beware of the Empire Builders 111 Do Managerial Agendas
Drive M&A? 113 Notes 114 CHAPTER 5 Horizontal Integration and M&A 117
Advantages of Holding the One and Two Position in the Industry 117 Benefits
of Size: Spotlight on the Mobile Telecommunications Industry 119 Motivation
to Increase Size 122 Competitive Pressures of Competitors' M&A Program 122
Horizontal Deals: Acquisitions of Competitors and Their Competing Brands
124 Sprint-Nextel Horizontal Deal: One of the Worst in M&A History 125
Declining Industry Demand Necessitating Industry Consolidation 128
Synergistic Gains and Horizontal M&A 129 Net Benefits of Horizontal Deals =
Synergistic Gains - (Easy to Measure Costs + Hard to Measure Costs) 133
Horizontal Merger Success, Target's Size, and Post-M&A Integration Costs
134 Mergers of Equals 136 Mergers of Equals and Challenges of Integration
137 Mergers-of-Equals Research: Acquirers versus Target Gains 139
Competitive Advantages of Horizontal Deals: Case Study--InBev and
Anheuser-Busch 139 Regulatory Concerns on Merger Integration 141 Horizontal
M&A and Market Power: An Economic Perspective 143 Empirical Evidence on
Whether Firms Pursue M&A to Achieve Market Power 145 Countervailing Power,
Industry Concentration, and M&A 147 Horizontal Integration, Consolidation,
and Roll-Up Acquisition Programs 155 Notes 156 CHAPTER 6 Vertical
Integration 159 Benefits of Vertical Integration 159 Risk and Vertical
Integration 159 Vertical Integration as a Path to Global Growth 160 How
Owning Your Own Supplier Can Be a Competitive Disadvantage 163 Vertical
Integration as a Natural Outgrowth of a Business 165 Vertical Integration:
A Growth Strategy? 168 Continually Reevaluating a Vertical Integration
Strategy 173 Regulation of Vertical Integration 176 Copycat Vertical
Integration 177 Note 178 CHAPTER 7 Growth through Emerging Market M&A 179
Economic Condition of Major Economies in the Postsubprime World 180
Low-GrowthMarkets' Diminishing Returns 181 Role of Demographics 182 The
Next 11 183 M&A Is Not Always the Best Way of Accessing High-Growth Markets
184 High-Growth Regions and Countries 185 Risks of EmergingMarkets 208
Entering Large Slow-Growth Markets Instead of Fast-Growth Emerging Markets
210 Reducing Country M&A Risk: Investing in Local Companies That Engage in
Substantial Emerging Market M&A 211 Finding Growth in High-Growth Markets
213 Emerging Market Acquirer 216 China and Its Emerging Market Acquirers
218 Notes 220 CHAPTER 8 Joint Ventures and Strategic Alliances as M&A
Alternatives 221 Contracts versus Joint Ventures 222 Potential Problems
with Joint Ventures and Strategic Alliances 222 Shareholder Wealth Effects
of Joint Ventures 224 Shareholder Wealth Effects by Type of Venture 225
Relatedness and Size 226 Market's Assessment of Risk of Joint Ventures 227
Strategic Alliances 227 Strategic Alliance Process 228 Shareholder Wealth
Effects of Strategic Alliances 229 Shareholder Wealth Effects by Type of
Alliance 229 Notes 230 CHAPTER 9 Role of Corporate Governance in M&A 233
Agency Cost Problem 233 CEO Compensation and Agency Costs 235 Do
Shareholders Get Value for the High Compensation Paid to U.S. CEOS? 237
Board Characteristics and CEO Compensation 238 Benchmarking and How Boards
Determine CEO Compensation 239 Are the High Paid Superstar CEOs Simply
Worth the Money? Not 240 Are CEOs Paid for Luck? 241 CEO Compensation and
M&A Programs 241 Do Boards Pay CEOs for Doing M&A? 241 Do Boards Punish
CEOs for Doing Bad M&As? Case of Rio Tinto 242 Golden Parachutes and M&A
243 CEO Severance Payments 243 Are CEOs Evaluating M&A by Thinking, "What's
in It for Me?" 244 CEO Overconfidence and M&A 244 Are Overconfident CEOs
Good for Anything? 245 Management Compensation and Post-Acquisition
Performance 245 Role of the Board of Directors 246 CEO Tenure, Board
Composition, and the Disciplinary Effects of Takeovers 257 Antitakeover
Measures 257 Corporate Governance and the Divestiture Decision 259 Notes
259 CHAPTER 10 Downsizing: Reversing the Error 263 Analyzing the Strategic
Fit of a Business Unit 266 Market Conditions 267 Regulatory Concerns 267
Divestiture Likelihood and Prior Acquisitions 267 Another Option: Equity
Carve Out 268 Another Option: Spinoff 269 Spinoff or Equity Carve Out:
Which Option Is Better? 270 Another Option: Split-Off 272 Tax Effects 272
Shareholder Wealth Effects of Selloffs 272 Round Trip Wealth Effects 274
Spinoffs as a Means of Increasing Focus 274 Differences in Types of Focus
Increases 275 Shareholder Wealth Effects of Spinoffs: United States versus
Europe 278 Corporate Governance and Selloffs 279 Managerial Ownership and
Selloff Gains 280 Activists and Selloffs 280 Market Liquidity and the
Decision to Sell a Unit 280 Involuntary Selloffs 281 Voluntary/Involuntary
Selloffs 281 Voluntary Defensive Selloffs 282 Tracking Stocks 283 More
Drastic Solutions: Voluntary Bust-Ups 285 RecentMajor Exceptions to
Positive Shareholder Wealth Effects of Selloffs 286 Notes 289 CHAPTER 11
Valuation and Merger Strategy 291 Financial versus Nonfinancial Buyers 291
Target and Bidder Valuation Effects 293 What Types of Acquiring Firms Tend
to Perform the Poorest? 295 Premiums 295 Historical Trends in Merger
Premiums 296 Stock Market Activity and Merger Premiums 297 Stock
Market-Driven Acquisitions 298 Determinants of Acquisition Premiums 298
Premiums from Strategic Mergers 298 Hubris and Merger Premiums 299 Early
Research 300 Later Research 300 Winner's Curse Hypothesis of Takeovers 301
Campeau's Mega-Bust 302 Research on Winner's Curse of Takeover Contests 304
Market Performance, Valuation, and Takeover Probability 304 Deal Size and
Shareholder Wealth 305 Valuation Analysis and Source of the Flaws in Bad
Deals 306 Comments of the Residual Value 308 Free Cash Flows 308 Cost
Cutting and Historical Free Cash Flows 309 Growth Rate for Projection 310
Capitalization Rates and the Exit Multiple 310 Discount Rate 311 Whose
Capital Costs Are We Measuring? 313 Using the Build-Up Method 313
Short-Term Interest Rate Trends 315 Using Comparables 316 Public versus
Private Acquirers 316 Public versus Private Sellers 318 Notes 321 About the
Author 325 Index 327
Introduction to M&A 4 Background and Terminology 5 Hostile Takeovers 5
Takeover Defense 8 Leveraged Transactions 10 Restructurings 12 Trends in
Mergers 14 Notes 20 CHAPTER 2 Growth through Mergers and Acquisitions 21 Is
Growth or Increased Return the More Appropriate Goal? The Case of
Hewlett-Packard 21 M&A Must Fit the Strategy--Not the Other Way Around 24
Strategy Should Not Be Just M&A 25 Organic Growth or Growth through M&A 25
Acquisition and Development versus Research and Development 26 Can M&A Be
Effectively Used to Buy Growth? 30 Success in Core Business Does Not Always
Translate to Success with M&A Strategy: Focus onMicrosoft 31 Growth through
Bolt-On Acquisitions 31 Knowing When to Exit a Business 35 From Growth
through M&A to Growth through Organic Expansion 36 Controlling the Runaway
Dealmaker CEO 38 Using M&A to Achieve Growth in a Slow-Growth Industry 40
Squeezing Out Growth in a Slow-Growth Industry Using Multiple Options 40
Dealing with a Slow-Growth Business and Industry 42 Geographical Expansion
through M&A 46 International Growth and Cross-Border Acquisitions 47 Taking
Advantage of Currency Fluctuations to Pursue High-Growth M&A 47 Finding
Growth in High-Growth Markets 49 Cyclical Companies Achieving Growth in
Recessed Markets 50 Notes 52 CHAPTER 3 Synergy 53 What Is Synergy in the
Context of M&A? 53 Achievement of Synergy: A Probabilistic Event 55 Types
of Synergy 58 Industries' Pursuit of Cost Economies 65 Research on
Operating Economies in M&A 69 Economies of Scope 70 Scope Economies and the
One-Stop Shop 72 Copycat Following of Another Firm's Foolish M&A Strategy
74 Cost Economies in Banking Mergers: United States versus Europe 75
Internationalization Theory of Synergy and Information-Based Assets 79
Notes 89 CHAPTER 4 Diversification 91 Diversifying M&A in the Conglomerate
Era 91 Modern-Day U.S. Conglomerates 92 Portfolios of Companies 95
Theoretical Basis for Diversification 98 Applying Portfolio Theory to
Conglomerates? 99 Diversification and the Acquisition of Leading Industry
Positions 100 Achieving a Number One or Two Ranking Is Not a Panacea 102
Diversification to Enter More Profitable Industries 102 Empirical Evidence
on Diversification 103 Empirical Evidence on the Acquisition Programs of
the 1960s 103 How Likely Is It That Diversifying Acquisitions Will End Up
Being Sold Off? 104 Is There a Diversification Discount? 105 Focus
Hypothesis 106 Types of Focus Increases 106 Focus-Increasing Asset Sales
Raise Value 107 Explanation for the Diversification Discount 107 Related
versus Unrelated Diversification 108 Why Are Very Diversified Companies
Allowed to Form? Beware of the Empire Builders 111 Do Managerial Agendas
Drive M&A? 113 Notes 114 CHAPTER 5 Horizontal Integration and M&A 117
Advantages of Holding the One and Two Position in the Industry 117 Benefits
of Size: Spotlight on the Mobile Telecommunications Industry 119 Motivation
to Increase Size 122 Competitive Pressures of Competitors' M&A Program 122
Horizontal Deals: Acquisitions of Competitors and Their Competing Brands
124 Sprint-Nextel Horizontal Deal: One of the Worst in M&A History 125
Declining Industry Demand Necessitating Industry Consolidation 128
Synergistic Gains and Horizontal M&A 129 Net Benefits of Horizontal Deals =
Synergistic Gains - (Easy to Measure Costs + Hard to Measure Costs) 133
Horizontal Merger Success, Target's Size, and Post-M&A Integration Costs
134 Mergers of Equals 136 Mergers of Equals and Challenges of Integration
137 Mergers-of-Equals Research: Acquirers versus Target Gains 139
Competitive Advantages of Horizontal Deals: Case Study--InBev and
Anheuser-Busch 139 Regulatory Concerns on Merger Integration 141 Horizontal
M&A and Market Power: An Economic Perspective 143 Empirical Evidence on
Whether Firms Pursue M&A to Achieve Market Power 145 Countervailing Power,
Industry Concentration, and M&A 147 Horizontal Integration, Consolidation,
and Roll-Up Acquisition Programs 155 Notes 156 CHAPTER 6 Vertical
Integration 159 Benefits of Vertical Integration 159 Risk and Vertical
Integration 159 Vertical Integration as a Path to Global Growth 160 How
Owning Your Own Supplier Can Be a Competitive Disadvantage 163 Vertical
Integration as a Natural Outgrowth of a Business 165 Vertical Integration:
A Growth Strategy? 168 Continually Reevaluating a Vertical Integration
Strategy 173 Regulation of Vertical Integration 176 Copycat Vertical
Integration 177 Note 178 CHAPTER 7 Growth through Emerging Market M&A 179
Economic Condition of Major Economies in the Postsubprime World 180
Low-GrowthMarkets' Diminishing Returns 181 Role of Demographics 182 The
Next 11 183 M&A Is Not Always the Best Way of Accessing High-Growth Markets
184 High-Growth Regions and Countries 185 Risks of EmergingMarkets 208
Entering Large Slow-Growth Markets Instead of Fast-Growth Emerging Markets
210 Reducing Country M&A Risk: Investing in Local Companies That Engage in
Substantial Emerging Market M&A 211 Finding Growth in High-Growth Markets
213 Emerging Market Acquirer 216 China and Its Emerging Market Acquirers
218 Notes 220 CHAPTER 8 Joint Ventures and Strategic Alliances as M&A
Alternatives 221 Contracts versus Joint Ventures 222 Potential Problems
with Joint Ventures and Strategic Alliances 222 Shareholder Wealth Effects
of Joint Ventures 224 Shareholder Wealth Effects by Type of Venture 225
Relatedness and Size 226 Market's Assessment of Risk of Joint Ventures 227
Strategic Alliances 227 Strategic Alliance Process 228 Shareholder Wealth
Effects of Strategic Alliances 229 Shareholder Wealth Effects by Type of
Alliance 229 Notes 230 CHAPTER 9 Role of Corporate Governance in M&A 233
Agency Cost Problem 233 CEO Compensation and Agency Costs 235 Do
Shareholders Get Value for the High Compensation Paid to U.S. CEOS? 237
Board Characteristics and CEO Compensation 238 Benchmarking and How Boards
Determine CEO Compensation 239 Are the High Paid Superstar CEOs Simply
Worth the Money? Not 240 Are CEOs Paid for Luck? 241 CEO Compensation and
M&A Programs 241 Do Boards Pay CEOs for Doing M&A? 241 Do Boards Punish
CEOs for Doing Bad M&As? Case of Rio Tinto 242 Golden Parachutes and M&A
243 CEO Severance Payments 243 Are CEOs Evaluating M&A by Thinking, "What's
in It for Me?" 244 CEO Overconfidence and M&A 244 Are Overconfident CEOs
Good for Anything? 245 Management Compensation and Post-Acquisition
Performance 245 Role of the Board of Directors 246 CEO Tenure, Board
Composition, and the Disciplinary Effects of Takeovers 257 Antitakeover
Measures 257 Corporate Governance and the Divestiture Decision 259 Notes
259 CHAPTER 10 Downsizing: Reversing the Error 263 Analyzing the Strategic
Fit of a Business Unit 266 Market Conditions 267 Regulatory Concerns 267
Divestiture Likelihood and Prior Acquisitions 267 Another Option: Equity
Carve Out 268 Another Option: Spinoff 269 Spinoff or Equity Carve Out:
Which Option Is Better? 270 Another Option: Split-Off 272 Tax Effects 272
Shareholder Wealth Effects of Selloffs 272 Round Trip Wealth Effects 274
Spinoffs as a Means of Increasing Focus 274 Differences in Types of Focus
Increases 275 Shareholder Wealth Effects of Spinoffs: United States versus
Europe 278 Corporate Governance and Selloffs 279 Managerial Ownership and
Selloff Gains 280 Activists and Selloffs 280 Market Liquidity and the
Decision to Sell a Unit 280 Involuntary Selloffs 281 Voluntary/Involuntary
Selloffs 281 Voluntary Defensive Selloffs 282 Tracking Stocks 283 More
Drastic Solutions: Voluntary Bust-Ups 285 RecentMajor Exceptions to
Positive Shareholder Wealth Effects of Selloffs 286 Notes 289 CHAPTER 11
Valuation and Merger Strategy 291 Financial versus Nonfinancial Buyers 291
Target and Bidder Valuation Effects 293 What Types of Acquiring Firms Tend
to Perform the Poorest? 295 Premiums 295 Historical Trends in Merger
Premiums 296 Stock Market Activity and Merger Premiums 297 Stock
Market-Driven Acquisitions 298 Determinants of Acquisition Premiums 298
Premiums from Strategic Mergers 298 Hubris and Merger Premiums 299 Early
Research 300 Later Research 300 Winner's Curse Hypothesis of Takeovers 301
Campeau's Mega-Bust 302 Research on Winner's Curse of Takeover Contests 304
Market Performance, Valuation, and Takeover Probability 304 Deal Size and
Shareholder Wealth 305 Valuation Analysis and Source of the Flaws in Bad
Deals 306 Comments of the Residual Value 308 Free Cash Flows 308 Cost
Cutting and Historical Free Cash Flows 309 Growth Rate for Projection 310
Capitalization Rates and the Exit Multiple 310 Discount Rate 311 Whose
Capital Costs Are We Measuring? 313 Using the Build-Up Method 313
Short-Term Interest Rate Trends 315 Using Comparables 316 Public versus
Private Acquirers 316 Public versus Private Sellers 318 Notes 321 About the
Author 325 Index 327