In: Finance
Dear All
Could you please answer the below question. I would expect a long answer to may consist of 1500 words.
"It has been argued in the finance literature that a great majority of mergers lead to value destruction. Citing empirical evidence, discuss whether you agree or disagree with this statment".
Thank you!
MERGER AND VALUE DESTRUCTION
Mergers and acquisitions destroy the shareholder value in the acquiring company. The reasons are many. In some cases the merger bring together a group of people who work in different types of companies in different cultures. The problem is that they don't "merge'' actually. This will definitely affect their performance in future.
Overvaluing an acquisition is the another cause of loss of shareholder value. The managers may be distracted and may not be able to focus on business operations until the dust is settled. Mergers seems to pull the companies back from achieving the objectives as fast as they stand separate.
We can agree to this statement. Unless and until it is necessary, the companies should not opt merger or acquisitions. Because the post merger integration is very difficult. Example: Acquisition of Snapple by Quaker oats. The value was destroyed because of this takeover.