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Mergers, acquisitions, and strategic alliances : understanding the process
\"This book tackles the strategic, financial and procedural aspects of planning and executing mergers, acquisitions and strategic alliances. It also explores the similarities and differences between these various types of transaction and illustrates each with case studies, to help students from final year undergraduate to MBA. \"-- Provided by publisher.
Book
The relevance of political affinity for the initial acquisition premium in cross-border acquisitions
Research summary: In the context of economic nationalism, we investigate the relevance of political affinity between countries to the initial acquisition premium offered in cross-border acquisitions. Political affinity is defined as the similarity of national interests in global affairs. We argue that political affinity affects how foreign acquirers anticipate their bargaining position in their negotiations with domestic target firms. With decreasing political affinity, the host government becomes increasingly likely to intervene against foreign firms in an acquisition deal. Consequently, foreign acquirers need to provide a more lucrative initial offer to dissuade target firms from leveraging government intervention to oppose the acquisition. Our prediction is supported by strong evidence that political affinity, as revealed by UN general assembly voting patterns, leads to lower initial acquisition premiums. Managerial summary: Media reports suggest that politics plays an important role in international business transactions. However, we still know very little about how bilateral political relations affect corporate decision-making. In this article, we analyze the influence of the quality of bilateral political relations on the bidding behavior of foreign acquirers in cross-border acquisitions. We argue that the host government is more likely to intervene against the foreign acquirer during deal negotiations if the quality of bilateral political relations is poor. A lower political affinity between countries therefore decreases the bargaining power of the acquirer and pushes up the initial bid premium the acquirer has to offer to the local target. Our empirical results confirm our argument.
Journal Article
Breaking Twitter : Elon Musk and the most controversial corporate takeover in history
From New York Times bestselling author Ben Mezrich: the book Elon Musk doesn't want you to read. Breaking Twitter takes readers inside the darkly comic battle between one of the most intriguing, polarizing, influential men of our time--Elon Musk--and the company that represents our culture's dearest hope for a shared global conversation. From employee accounts within Twitter headquarters to the mission-driven team Musk surrounded himself with, this is the full story from all sides. Can Musk miraculously succeed or will he spectacularly fail? What will that mean to the global town hall that is Twitter? What, really, is Elon's end goal? The whole world is watching. Breaking Twitter will provide ringside seats. Elon Musk didn't break Twitter. Twitter broke Elon Musk.
BOOK
Cross-border mergers and acquisitions amid political uncertainty: A bargaining perspective
Research summary: This article exploits a natural experiment to estimate the causal effect of political uncertainty on bargaining outcomes in cross-border acquisitions. We argue that political uncertainty alters the relative bargaining power between acquiring versus target firms. The host country's political uncertainty makes the returns on cross-border acquisitions more unpredictable. Accordingly, foreign acquirers demand compensation for such uncertainty in negotiations, otherwise they will not consider their acquisitions profitable. Thus, when political uncertainty is high in the host country, ceteris paribus, foreign acquirers have greater bargaining power, which leads to more favorable outcomes for acquirers. Using national elections to measure political uncertainty, we find evidence strongly supporting our prediction. Target firms capture a smaller portion of the acquisition gains than do acquiring firms, when political uncertainty is high. Managerial summary: The uncertainty about the host government policies is a major concern for firms considering cross-border acquisitions. However, we know little about how such uncertainty influences cross-border deal negotiations and outcomes. This research investigates the effect of political uncertainty on the bargaining outcomes in cross-border acquisitions. We argue that high political uncertainty in the host country strengthens the foreign acquirer's bargaining position relative to the acquired firm. The outcome of investment is harder to predict under political uncertainty, and therefore the foreign acquirer will require compensation for political uncertainty such as paying a lower takeover premium and using a contingent payment option. Without such compensation, the foreign acquirer may not find it attractive to make a deal. Our empirical results support our argument.
Journal Article
Target Firm-Specific Information and Acquisition Efficiency
This study investigates whether firm-specific information about targets improves acquisition efficiency. We define acquisition efficiency as the total surplus generated by an acquisition and measure it as the difference in the value of the merged firm and the sum of the two firms operating separately. We find a positive association between target firm-specific information and acquisition efficiency that is driven mainly by diversifying acquisitions. Additional evidence suggests that both the likelihood of the withdrawal of an announced acquisition and the likelihood of a future divestiture of a target decrease with target firm-specific information. Taken together, our findings suggest that the availability of this information improves merger and acquisitions efficiency.
This paper was accepted by Mary Barth, accounting
.
Journal Article
When Does Corporate Social Responsibility Backfire in Acquisitions? Signal Incongruence and Acquirer Returns
This study examines whether an acquirer's pre-announcement corporate social responsibility (CSR) engagement can provide an insurance-like effect to preserve acquirer returns during the announcement of an acquisition event. Drawing on stakeholder theory and signaling theory, we posit that CSR engagement accrues positive moral capital for an acquirer and sends a positive signal indicating the acquirer's altruism, both of which temper stakeholders' negative responses and prevent a reduction in market returns around the announcement of an acquisition. However, high-CSR engagement could backfire when the acquirer makes a hostile takeover announcement. Incongruent signals between high-CSR engagement and the hostile practice are a sign of hypocrisy in the eyes of stakeholders, which can worry investors and hurt acquirer returns. By analysing 1310 acquisition transactions from 2002 to 2012, the results of our event study show that high-CSR acquirers generally enjoy positive acquirer returns during their acquisition announcements, but negative returns when the acquisitions are hostile. These findings support the idea that CSR engagement can provide insurance-like benefits during an event that is often seen as \"negative\", while also identifying signal incongruence as an important boundary condition.
Journal Article
Failure to Complete Cross-Border M&As: \To\ vs. \From\ Emerging Markets
While cross-border mergers and acquisitions (M&As) involving emerging markets have been increasing in recent years, a high percentage collapse before completion. This study investigates how the predictors of cross-border M&A completion involving emerging markets depend upon the direction of global expansion, i.e., investment inbound to a developing market or outbound from a developing market. Analysis based on 15 years of data from four emerging economies, Brazil, Russia, India, and China, from 1995 to 2010, reveals fundamental differences in the predictors of inbound vs. outbound M&A completion. Country-level factors reflecting differences in political, trade, and legal environments strongly affect the completion for inbound M&As, but have a much weaker influence on outbound M&As. By contrast, firm-level factors such as past M&A experience have a significantly stronger effect on completion for outbound than for inbound M&As. Most interestingly, two deal-level factors (the percentage of stake sought by the acquirer and whether or not the deal is a cash transaction) increase the likelihood of completion for inbound but decrease it for outbound M&As. These findings have important managerial implications for enhancing the success of global expansions.
Journal Article
The Role of Accounting Quality in the M&A Market
We examine the role of target firms’ accounting quality in the merger and acquisition process. We predict that target firm accounting quality will be positively associated with (1) the likelihood that the deal will be structured as a negotiation rather than as an auction, (2) the speed with which the deal reaches final resolution, and (3) the likelihood that the proposed deal is ultimately completed. Our empirical evidence is consistent with these predictions. These results complement and extend existing findings on target firm accounting quality and provide new evidence that financial accounting quality relates positively to the efficient allocation of the economy’s capital resources.
This paper was accepted by Mary Barth, accounting
.
Journal Article
The Persistent Effect of Geographic Distance in Acquisition Target Selection
Valuable resources often exist at distant points from a firm’s current locations, with the result that strategic decisions such as growth have a spatial dimension in which firms seek information and choose between geographically distributed alternatives. Studies show that geographic proximity facilitates the flow of resources, but there is limited understanding of factors that exacerbate or ease the impact of geographic distance when firms seek new resources. This paper argues that the difficulty of search increases with distance, particularly when search involves greater information processing, but that firms can partially overcome the constraints of distance with direct, contextual, and vicarious learning. We study 2,070 domestic acquisition announcements by U.S. chemical manufacturers founded after 1979. The results demonstrate the persistent effect of spatial geography on organizational search processes.
Journal Article
Internal Control Weaknesses and Acquisition Performance
This study examines internal control weaknesses (ICWs) reported under Sarbanes-Oxley (SOX) Section 302 in the context of mergers and acquisitions. We predict that problems in an acquirer's internal control environment have adverse operational implications for acquisition performance. We argue that acquirers with low-quality internal information needed to select profitable acquisitions will make poorer acquisition decisions. We also argue that ICWs impede effective monitoring and are likely to hinder integration tasks that are important to acquisition profitability. We find that ICWs disclosed prior to an acquisition announcement predict significantly lower post-acquisition operating performance and abnormal stock returns. Poorer post-acquisition performance is concentrated in ICWs that are expected to impede acquisition activities (i.e., forecasting/valuation, monitoring, and integration). Our findings contribute to the literature linking ineffective internal control over financial reporting to negative operational outcomes. We also contribute to the SOX cost-benefit debate by documenting a previously unidentified benefit of ICW disclosures.
Journal Article