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Mergers and acquisition - Essay Example

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Mergers and acquisition

Firms in different industrial sectors tend to respond differently when entering a M&A process. Current study focuses on the effects of M&A process on the increase of shareholders value and the creation of shareholders wealth. Reference is made on a specific industrial sector: the financial services industry. The case of a recent merger of two financial institutions - banks in Britain, Lloyds and HBOS, is used in order to show all the potential aspects of the issue under examination. Employees from both these institutions have accepted to participate in the study. The results - along with the material published in the literature - indicate that M&A can be a valuable strategic tool for the increase of a firm's profitability; however, its effects on the creation of shareholder wealth are not quite clear.
The study focuses on the examination of the following issues: a) how can mergers and acquisition benefit a firm's shareholders, b) which are the effects of mergers and acquisition on a firm's equity' c) are there specific measures taken for the increase of shareholders' wealth in the case of a merger or acquisition, d) which is the role of state in the development of the relevant procedure - control by antitrust authorities, e) does the leadership style affects the development of mergers and acquisition' And f) does the n...
2. Literature Review
The development of M&A through the decades has been continuous; the specific strategic tool has been used by managers in order to support the improvement of their firms' performance - even if the results have been found to the different in each particular firm. M&A have been used since the 1940s but their use was then limited; through the years M&A have been significantly developed reaching in 1980s an important level. However, it was necessary that changes are made on the existing M&A practices in order to meet the demands of the market but also the firms' potential to respond to the requirements of the particular processes. Regarding this issue it is noted that 'the market for acquisitions changed dramatically in the 1980s as government policies facilitated 'mergers for efficiency' rather than 'merger for diversity'' (Lubatkin et al., 1997, 59). On the other hand, it is proved that the effects of M&A on a firm's performance can be differentiated - the financial strength of the acquirer may not directly supported or increased - long term benefits are rather to be expected in case of development of the relevant process. The above issue is highlighted in the study of Flanagan (1996) where it is noted that 'purely related acquirers benefit more than purely unrelated acquirers; acquiring firm stockholder returns were also higher if the acquisition was friendly or a tender offer' (Flanagan, 1996, 823). At a next level, it is noted that 'acting in a socially responsible and lawful manner is a necessary, though not sufficient, condition for increasing shareholder wealth' (Frooman, 1997, 221).Of course, it is possible that the effects of M&A do not appear within a short period after the completion of the process. The reasons ...Show more

Summary

In modern market, mergers and acquisition (M&A) have become a common strategic tool for the development of business activities; through the M&A firms increase their investment capabilities but also their competitiveness towards their rivals; at least, these are the initial intentions of shareholders that agree to proceed to a relevant procedure…
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