Question

Please elaborate on why a merger may not add value to the acquiror

Answer 1

The following reasons will tell you, why merger may not add value to the acquiror:-

1) It is clear that state antitrust enforcers are able to challenge corporate mergers.Critics fear negative effects from ascendent state merger scrutiny.

2) Many believe that the government's position towards exceptionally large transactions should be a fundamental matter of national economic policy.

3)  Sudarsanam (2010) and Lipczynski et al. (2009) specify that certain market conditions must exist before increased market power will result in increased profits.

4)  Firstly, seller concentration must be sufficiently high prior to the M&A endeavor, if such is to have an influential effect on price. Even so, the ability to exert price control is dependent on multiple factors, one of which is the price elasticity of demand in conjunction with the bargaining power of one's buyers. Also, the ability to increase prices is based on the responsiveness of competitors in terms of their ability to react to shifts in demand.

5) On average and across the most commonly studied variables, acquiring firms' financial performance does not positively change as a function of their acquisition activity.^[27]Therefore, additional motives for merger and acquisition that may not add shareholder value.

6)  Strikingly, an “a high to low” acquisition doesn’t generate the highest excess returns to acquirer and combination, as found by Lang, Stulz, and Walkling (1989).

7) As expected, relative size has a significant negative influence on target excess returns. We don’t find this effect on purchased goodwill. Relative size also doesn’t influence the acquirer excess returns.

8) Even though M&As may lead to cultural clashes and differences, when firms come together they can enrich their knowledge base by sharing and exchanging ideas which may not be available in their national environment.

9) Acquisition success may not happen immediately, but may do so in the long-run.

10) Most academic studies of mergers argue that a majority of mergers are not beneficial to the acquiring company. Yet companies continue to pursue mergers.