Question

The M&A environment as often been characterized as the market for corporate governance. Followers of the efficient market theories argue that M&A activity promotes efficiency in firms and markets. Given your experience so far, comment on this. Give an example of a merger or acquisition that makes your . Please do not post definitions. Note, this isn't about synergies.

Answer 1

“Corporate governance” refers to the top management process that manages and mediates value creation for, and value transference among, various corporate claimants (including the society-at-large), in a context that simultaneously ensures accountability toward these claimants.

Governance mechanisms can be broadly grouped into those that are internal to the firm, and those that are external. Although both sets of mechanisms are present in many instances, we can view them as being substitutes: If internal mechanisms ensure that the corporation is well-governed, external mechanisms presumably need to play a background role. The role of external mechanisms become more important when internal mechanisms fail or are deficient.

But all of these internal mechanisms operate in an external environment. There are at least four important external mechanisms of corporate governance: capital markets, product markets, managerial labor markets, and the market for corporate control.

External capital markets – both equity and debt markets – exercise discipline both because firms have to subject themselves to its scrutiny when they wish to raise external funds, and because financial markets help determine the structure of equity ownership. The source of product market discipline is obvious: In competitive economic systems, firms that cannot consistently produce (relative to their competition) cheaper, faster, better, and more innovative products that the consumer demands will not survive. Competition will ensure that only the “fit” survive. Similarly, managerial labor markets ensure that managers from better-performing firms will be rewarded and worse-performing firms penalized by their “price” in the marketplace.

Mergers and acquisitions take place between the entities operating in the same industry in order to expand the operations and take benefit of the scale of operations.

The biggest merger and acquisition of Amazon and whole food in 2017 that e-commerce giant Amazon announced that it would be buying high-end organic grocery chain Whole Foods for $13.7 billion; the deal officially closed at the end of August. While the acquisition has been off to a rocky start, it gives Amazon hundreds of physical stores and provides the company a strong entryway into the competitive grocery and food industry.