Misvaluation affect the failure of merger and acquisition activities - Essay Example

Only on StudentShare

Extract of sample
Misvaluation affect the failure of merger and acquisition activities

For instance, Vishny (2003) states that misvaluation effects play an important role in market approaches in the short as well as in the long run since they are often driven by managerial optimism whereby the managers intend to satisfy their immediate financial benefits and this often leads to failure in the long run. Reasons such as such as differences in accounting principles, misvaluation of stocks and managerial approaches have been observed to be the main causes of failure of mergers and acquisitions. In some cases, organisations may be undervalued or overvalued but the truth of the matter is that markets are not static as they can change at any moment. The research methodology has been based on secondary research which focused on the merger of Time Warner and AOL. The findings of the study show that this merger failed as a result managerial optimism whereby the CEOs of Time Warner and AOL used their overvalued stocks to merge their organisations. The managers assumed that their organisations will perform well in the future. Their assumptions were based on the notion that the trend will continue like that but that was not the case. Indeed, the internet Bubble that was so promising in the beginning but the trend later changed due to different market forces. ...
Download paper

Summary

It can be concluded that the study has been designed to explore the impact and influence of misvaluation in the failure of mergers and acquisitions. The main aim of the research has been to establish the role of misvaluation in the failure of mergers and acquisitions…
Author : barrowsstephani

Related Essays

Empirical Finance: The Failure of Merger of Equals
Some of the reasons given for mergers relate to efficiency, market power, market discipline, expansion of operations and diversification (Andrade 2001). In terms of efficiency, emphasis is placed on economies of scale or other synergies that may result. Horizontal mergers often refer to economies of scale to be gained; however, economies of scale do not continue to infinity. There is always a point to which they apply, unless more advanced technology can extend it further then diminishing returns is likely may set in. 1.1 Background In the letter proposing the merger of equals between Xstrata...
26 pages (6526 words) Dissertation
Market/investor Misvaluation Effect Merger and Aquisition Activity
When firms decided to merge or acquire it faces many issues among them one of the important problem is its valuation or the payments. Sometimes the companies may make misevaluation in its stock misevaluation of stock means artificially increase the value of share. Overvalued firm use their overvalued shares to purchase comparatively undervalued firm. If managers are confident regarding the performance of the firm after the merger market valuation is less matter. “If bidder managers are overconfident, market valuation should matter less, because overconfident managers would not perceive their...
8 pages (2008 words) Literature review
Mergers and Acquisition
The paper here studies the effectiveness of the mergers and acquisitions and also the limitations of the overall process in gaining the profitability of the newly formed company. The role of Merger and acquisition: Most organization incorporates the strategy of the mergers and acquisition only in time of crisis faced by them. As a result the organization entering in to the process fails to critically look in to several issues like the strategic fit, and the risk involved with such strategies. The shareholders value in the firm takes a major setback due to such hasty decision making, from the...
12 pages (3012 words) Essay
Choices for Capital Structure for Firms Undergoing Merger
The essay "Choices for Capital Structure for Firms Undergoing Merger" discusses the importance given to the propositions made by Modigliani and Miller when there are instances, such as mergers and acquisitions between two companies, which require raising new capital or reshuffling the existing capital structure.
...
17 pages (4267 words) Essay
Merger and Acquisition
Johnson & Johnson, on the other hand, is one of the biggest names in the health care industry, serving customers around the globe with its baby care products, medical devices, medicines, body nutrition and other day to day consumer products (Jnj.com, 2013). The announcement by Johnson & Johnson had created waves in corporate world; firstly, this marked the biggest acquisition in this industry, and secondly it had multiple-fold effects disturbing many organizations within and outside the industry. Strategic Justification Johnson & Johnson was observed to be laying great emphasis on health care...
9 pages (2259 words) Essay
healthcare post merger analysis
Consolidation in this industry is essential for its sustainable growth in the long run and to meet the emerging challenges in the industry in terms of huge investment and infrastructural facilities needed to cope up with the increased demand in the society for healthcare services. Evaluation of financial performance Study by Healy, Palepu & Ruback (1990) found that “The results indicate that merged firms have significant improvements in asset productivity relative to their industries after the merger, leading to higher post-merger operating cash flow returns.” The criteria for evaluating...
6 pages (1506 words) Essay
merger and acquisition: a story of success and failure
According to the Harvard Business review, the yearly expenditure incurred by the companies on the acquisitions is more than two trillion (Christensen, Alton, Rising, & Waldeck, 2011). Bitter truth of the story lies in the fact that organizations seduced to acquisition for the fast paced growth fail with a great number. Nearly 70 to 90 percent of the acquisitions fail to achieve the objectives set forth as the ground for the acquisition (Christensen, Alton, Rising, & Waldeck, 2011). The percentage of failure self evidences the fact that organizations adopting acquisition strategy have failed to...
15 pages (3765 words) Research Paper
Got a tricky question? Receive an answer from students like you! Try us!