Question

1. Do you think shareholders from target companies enjoy an average gain when acquired, while acquiring shareholders do not benefit anything? Why? Are there any common flaws in the negotiation for a merger? Can you comment on the value creation process in an acquisition?     

Answer 1

Yes, I think that shareholders from the target companies are always enjoying average gain when they are acquired because acquisition will always be meaning that these targets companies will be acquired at a higher valuation than the existing valuation because then only the shareholders are selling their securities in order to get acquired.

Acquiring company will generally be not having much scope for gaining through acquisition in the short-term and it'll always gaining through various market improvements in the long run, so it can be said that acquisition is done for the purposes of long-term so acquisition company share holders are not gaining in the short run in terms of capital appreciation so, the target company shareholders are always gaining and the acquiring company shareholders does not have much scope for gain in the shor term.

Mergers are often done through a lot of negotiations and fixation of a price at which there would be mutual benefit for the shareholders of both the companies but it is not in practical as shareholders of only the target companies are gaining, so it can be beneficial in the long run for the acquiring company, not in the short run.

yes there is a value creation process in acquisition as when these targets companies are acquired, this target companies can offer with maximization of the overall market share for the acquiring company and they can also help in order to gain competitive advantage. These acquisitions can be helpful in order to to gain pricing power and control over the market.