Mergers and Acquisitions as a Strategic Mean of Creating Value and Maximizing Shareholder Wealth By [Name of student] [Presented to] [Name of institution] [Date] INTRODUCTION Organisations in the current business environment thrive for success and creation of value…
An Overview of Mergers and Acquisitions DePamphilis (2008 pp-04-06) defined mergers and acquisitions as a part of corporate and management strategies dealing with the buying, selling and combining of different organsiations having similar business activities or activities that can support the present and future growth and development in a systematic manner. Over the years, the distinction between mergers and acquisitions has become quite blurred in respect to economic outcomes but continues to attract organisations (Cartwright, Schoenberg, (2006 pp. 11-14). Studies have shown that 50% of acquisitions have been unsuccessful considering the complex process and different dimensions associated with the actual outcomes (Straub, 2007). Lazonick, O'Sullivan, (2008 pp-24-27) stated that the rationale behind mergers and acquisitions is based on the thought that two companies together can be more valuable and robust compared to two different companies. Moreover, mergers and acquisitions help in attaining cost efficiency by sharing operational and functional costs along with thriving to achieve greater market share and efficiency in a planned way (Harwood, 2006 pp- 24-35) Relevant Theories Mergers and acquisitions can be linked with various relevant theories. ...
behave and operate in a manner that leads to the creation of an identity that helps in the growth and development (Postmes, Branscombe, 2010 pp- 11-23). Mergers and acquisitions help in creating new identity for smaller organisations while helping in revamping the identity of large organsiations (Akerlof, Kranton.2010 pp- 04-11) Role Conflict Theory is based on the perception that individuals and organsiations experience role conflict by finding themselves pulled in various directions as per the status held by them (Tang, Chang, 2010 pp-13-21). Hitt, et al, (2009 pp-12-23) stated that mergers and acquisitions help in creating synergies between organisations that in turn help in enhancing the worth and value of organsiations. However, Straub (2007 pp-03-11) stated that value creation and wealth maximisation is dependent on the nature and relationships of organsiations. It can be said that both views are directed towards a positive relationship creating synergy and wealth maximisation but dependent on internal and external factors. Value destroying theory states that mergers and acquisitions fail because firms fail to address informational constraints and focus too much on private utility function that affects the overall value creation process of organsiations (Malmendier, Tate, 2005 pp- 24-32). Straub (2007 pp -23-45) also agreed to this statement and stated that mergers and acquisitions require proper assessment of internal and external factors to create value in the business environment. All these theories can be associated with other relevant theories such as SWOT, PESTEL, and Game Theory. Armstrong (2006 pp-24-34) stated that SWOT analysis is based on analysing the strengths, weaknesses, opportunities and threats of individuals and organsiations. Strengths and ...
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Since the past decade, the globalisation of the businesses across the globe has initiated a search for the competitive advantage, worldwide. With the increased competition to fetch the customer satisfaction in a cost effective way, the companies have responded to the pressure of attaining scale in a quickly consolidating global economy
Historically, the fundamental corporate objective has remained focussed on maximizing share holder value with a notion that this fundamental objective can ensure existence & growth of the corporations. This has worked traditionally quite well but has a conflicting relationship with another fundamental corporate objective - the corporate governance.
Most companies carry it out to improve their business fortunes.
The terms mergers & acquisitions are generally used together or sometimes even interchangeably but there is a sight difference in the two terms. Acquisition takes place when one company becomes the owner of another company in a way that the company sold ceases to exist and the buyer company continues to trade its stock.
The bilateral trade agreements between the nations allow the business organizations to commence business operations in other nations thus providing a base to establish their international ventures which also bring prosperity to the acquirer nation as well as the target nation in terms of employment, taxes, sales, etc.
In a merger, the surviving firm acquires the assets and liabilities of the other firm(s). A relevant example here is the recent merger of HDFC Bank and Times Bank. After the merger, Times Bank will go out of existence and expanded HDFC Bank will continue to exist.
Shareholder value maximisation has been a revolutionary notion shifting the focus of management efforts towards shareholders’ interests and investor protection. Management acts as the agent of shareholders who are the real owners of a company and therefore are expected to work in the best interest of shareholders.
Historically, the fundamental corporate objective has remained focussed on maximizing shareholder value with a notion that this fundamental objective can ensure existence & growth of the corporations. This has worked traditionally quite well but has a conflicting relationship with another fundamental corporate objective – the corporate governance.