Research Paper on "Mergers Can Fail"

Research Paper 4 pages (1162 words) Sources: 0

[EXCERPT] . . . .

Mergers can fail for a variety of reasons. There are many definitions of failure that can be applied to merger and acquisition activity. Certainly if a company goes into insolvency that would be considered a failure, but that is a symptom not an underlying cause. Failure is determined by the strategic objectives of a merger or acquisition. These objectives could be synergies, diversification, cost control or revenue expansion. If the objectives of the merger are not met, and there are no unexpected benefits of the merger, then the merger is a failure. For example, the FedEx -- Kinko's merger is roundly considered to be a failure, even though FedEx continues strong today and the Kinko's operations continue as well, albeit under a different name. But the merger cause FedEx to lose money, lose face and it never did see any of the strategic advantages it had hoped to gain from the transaction.

A number of factors can render a merger or acquisition unfavorable. Culture clash and lack of strategic synergy ruined the FedEx-Kinko's tie-up. Other mergers have been scuttled as synergies failed to emerge, firm risks increased, power struggles between management at the firms made working together more difficult than anticipated. Another potential cause is that shifts in the external environment rendered the expected advantages unattainable, as happened with technological shift rendered much of the AOL business model obsolete, scuttling the value of the Time Warner AOL merger. Similarly, News Corp has failed to derive value from MySpace because Facebook took over the social networking segment.

The results of merger failures, when they reach the catastrophic level, can be devastating. Technical insolvency occurs when a firm is in such financial distress that it fails to meet a legal obligation. This differs from legal insolvency in that legal insolvency involves the invocation of legal proceedings such as creditor protection. A legal insolvency implies, however, that the firm may continue as a going enterprise. Bankruptcy is a legal situation in which an insolvent firm may restructure its debts, shed some obligations and otherwise reorganize. There can be some grey area between legal insolvency and bankruptcy, such as the example from last year with General Motors, when the company went into bankruptcy but emerged as a continuing entity but without obligations.

The implications of an M&a failure extend beyond insolvency or bankruptcy. Even when the firm continues, there are significant implications for its stakeholders. On the financial front, firms with failed M&a strategies will typically lose value from their share price. Most acquiring firms lose value at the point of acquisition, since they must pay a premium to acquire a firm. When the expected benefits do not materialize, the share price remains suppressed. Should the merger failure have a negative impact on operations -- for example if it creates a toxic atmosphere at the company or a distraction for management -- the natural result will be a reduction of revenue or profit and this will be reflected directly in the stock price. Until the situation is resolved, the stock price will remain suppressed.

The company's image can also take a beating in the event of an M&a failure. Management's reputation will be reduced as the result of their decision to make a bad merger. Time Warner's reputation, for example, suffered as a result of their tie-up with AOL; a deal that was once viewed as ground-breaking soon made management appear foolish. Likewise, FedEx suffered a loss of reputation for its Kinko's acquisition, simply because… READ MORE

How to Reference "Mergers Can Fail" Research Paper in a Bibliography

Related Research Papers:

Mergers and Acquisitions Play an Important Role Thesis

Mergers and acquisitions play an important role in the growth of corporations, and have given birth to some of largest corporations in the world today. There are a number of… read more

Thesis 4 pages (1160 words) Sources: 0 Topic: Film / Movies / Television

---

Management Principles Mittal Case Study

Management Principles

Mittal used a variety of different skills in building his empire. With respect to human skills, Mittal utilized two very different skill sets. The first was his own… read more

Case Study 4 pages (1326 words) Sources: 7 Topic: Business / Corporations / E-commerce

---

Employee Motivation in a Pcba Contract Manufacturing Dissertation

Employee motivation in a PCBA contract manufacturing industry -- an example of Plexus

Today many organizations are going through change due to globalization and ever changing technology. Organizations have to… read more

Dissertation 64 pages (17554 words) Sources: 72 Topic: Management / Organizations

---

Analyzing a Health Care Organization Case Study

Fortis Healthcare

Case Study on Fortis Healthcare Ltd. Information Systems

Fortis healthcare is among the fastest growing healthcare organization, with a state-of -- the art facilities and extreme commitment to… read more

Case Study 12 pages (3540 words) Sources: 6 Topic: Healthcare / Health / Obamacare

---

Economics of the Pharmaceutical Industry Thesis

Economics of the Pharmaceutical Industry

The pharmaceutical industry is highly complex and segmented. The costs for bringing a new product idea to the market are high. It is a long… read more

Thesis 10 pages (3522 words) Sources: 15 Style: APA Topic: Medicine / Pharmacy

---

View 100+ more related papers  >>