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Mergers and Acquisitions: reasons and consequences at the international market

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ingénierie financière

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  1. Abstract
  2. Introduction and methodology
  3. Mergers and acquisitions: The overview
    1. Definition of mergers and acquisitions
    2. Classification of mergers and acquisitions
    3. Modes of payment for mergers and acquisitions
    4. Motivations behind mergers and acquisitions
    5. History of mergers and acquisitions
  4. Creation and destruction of value through mergers and acquisitions
    1. Definition of value creation
    2. Detailed analysis of mergers and acquisitions performance
    3. Distribution of value creation in mergers and acquisitions
    4. Factors leading to failure
  5. Valuation of mergers and acquisitions
    1. The price margins
    2. Valuation methods
    3. Valuation of remedy corporation
  6. Conclusions and recommendations
  7. Bibliography
  8. Appendices
  9. Endnotes

The paper deals with the issue of mergers and acquisitions on the western market, viewing the topic from the standpoint of their failure and success. The subject is an extremely important one at present, as, on the one side, there is a trend towards major international mergers and acquisitions and, on the other side, many researches indicate that more than half of deals fail.
Having done the research on main factors of failure of Mergers and Acquisitions, it was established that companies fail transactions, because they forget about shareholders' interests and are often driven by their own interests and motivations. While shareholders are interested in financial flows that can generate a particular transaction, managers often overpay for the target, by mistake and sometimes even intentionally, and thus transfer wealth to target's company. Secondly, managers pay often in stock rather than in cash, communicating in such a way to shareholders about company's insufficient liquidity. There have been determined some other less frequent factors of failure, but still affecting acquiring company's shareholders.
The moral of the paper consists in that shareholders have an uncanny knock to react immediately to changes in corporate structure by pushing up or by pulling down the stock prices. Although there exist numerous motivations for mergers and acquisitions, companies must always set in advance the ultimate goal of value creation for their shareholders

[...] The following hypothesis has been proven in a result of carried out analysis: order to minimize at a very high extent the risk of failure of Mergers and Acquisitions, buying companies should pursue the primary goal of value creation for their shareholders and communicate them positive messages.? The object of the study is merger and acquisition transactions carried out by American and European public companies. The subject of the study is value creation for shareholders of buying companies, measured through the price of shares that they own. [...]

[...] Reasons for overpaying Since the results of a survey have shown that the most popular reason of failure of mergers and acquisitions is overpaying for the target company, the second part of a survey was concentrated around this question in order to give more concrete recommendations to the buying companies. All of the interrogated Managers mentioned two reasons for overpaying. Absolutely all of them have agreed that companies overpay because there is always increased competition for financially stable and strategically attractive targets. [...]

[...] Gordon Shapiro, however, is more often used than others: Total value of the target company: The total value of the target is received by summing up of the discounted future expected cash flows over a forecast period and the terminal value at the end of forecast period and subtracting out the fair market values of debt. Here is a formula: Total value = NPV + Terminal value Net liabilities 3.3 Valuation of Remedy Corporation This paragraph is designed to illustrate a bad practice of acquisition: Remedy Corporation by Peregrine Systems. [...]

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