Mergers and acquisitionsINTRODUCTIONIt is only a normal thing that there would be change in the income of shareholders whenever there is a merger in the firm that invested in. the question that now comes with this paper is that, does this mergers and acquisitions affect the investment of the shareholders and if it does, does it affect it positively or negatively? Apart from the way it affects these investments, other things that have to be put into consideration is the factor that causes the effect.For every mergers and acquisition to be successful, there are methodologies to be followed and this would contribute to a better understanding between the firms merging and the shareholders.
If or not the questions arising from mergers and acquisition on the way it favours shareholders then the answer will be yes. It favours them positively increasing their returns on investments and provides a form of insurance and security to the future yields of their investments.A large body of literature in the fields of economics and strategic management has investigated the question under which conditions M&As may be beneficial to the involved companies, the consumers, or society at large. One of the most widely used methods used this body of literature is the event study method, which looks at the companies’ stock prices to assess the future benefits of an M&A event.
It has been widely observed that the release of important corporate information such as M&A announcements may trigger significant reactions of stock prices. When the market learns about these kinds of events, the involved stock price may immediately climb or fall. Hence, it appears that the market connects an event (e.g.
a merger between two companies) with the prospect of future increases or decreases of cash flow. Another way of putting this is that the stock price will immediately reflect “the good news” or “the bad news”. This and other factors are what we are going to look into in this paper.AIMS OF THIS DISSERTATIONThis book focuses on business value—what creates it, how to measure it, how to build it, and how to maximize it in merger and acquisition.
These concepts are equally important to buyers and sellers because both can and should benefit from a deal. But different results frequently occur. Sellers may sell under adverse conditions or accept too low a price due to lack of preparation or knowledge. In addition, every buyer runs the risk of purchasing the wrong business or paying too much.
That is why understanding value—and what drives it—is critical in merger and acquisition.It shows the gains that have to come with mergers and acquisitions and how it affects the investment of shareholders positively. It also increases the target of shareholders on their investments and wealth. It also explains how to create, measure, and maximize value in merger and acquisition in the context of the broader business goal of building value.
LITERATURE REVIEWEmpirical findings show that there is an overall positive shareholder wealth effect associated to M&A announcements in the telecommunication industry. This is especially true for telecommunication operators engaging in cross-border M&As. They experience positive abnormal returns and outperform firms that expand domestically. In addition, when investigating service diversification and international diversification, mergers that are both non-conglomerate and cross-border are found to add value to the acquiring telecommunications operator, whereas no significant stock reactions are found when acquirers engage in conglomerate domestic mergers.
(Olaf Rieck. et. al., 2005)RESEARCH QUESTIONS1.
Do mergers and acquisitions increase shareholder wealth?Do mergers and acquisitions increase bidder shareholder wealth?Do mergers and acquisitions increase target shareholder wealth?By establishing an alliance and joining of strengths and capabilities by firms, they will create potential synergies. Actually, the synergy potential is the potential benefit from the interaction between the joining companies, given their optimal integration. There are the pre-conditions of the alliance that encourage two companies to be involved in an M&A process.We can say that there will be an outstanding complementarity of operating strengths.
The merging firms would have the opportunity to exploit synergies that cover the totality of their activities, notably in the sector of purchasing, product strategy, and research.When all this is done, there will be every tendency for the firms to increase in its output, and this of course will bring about the growth of the firms and when these firms grow, it means that the investment of shareholders will grow. So definitely, the wealth of shareholders grows with mergers and acquisitions.There is also every tendency for the wealth of bidders to increase with mergers and acquisitions.
The target of that shareholders tend to meet with their level of wealth is also possible with merger and acquisitions. The increase in strength and services of merged firms tend to cause better increase in their output and returns n investment. So I believe that a steady increase in revenue from firms would increase the wealth of shareholders steadily to meet up with their expected target in their level of wealth.For example taking a look at the telecommunication industry, results are consistent with previous event studies in showing that M&As in the telecommunication industry generally result in significant gains in the market values of the acquirer.
Therefore, it can be concluded that the market is generally optimistic with regards to the potential of telecom carriers to add value in this industry. The highly competitive marketplace in the telecom sector means that high returns are no longer guaranteed for big telecom firms. Telecommunications networks have typically high fixed costs but the marginal costs for an additional customer are comparably very low. As a result, the potential for economies of scale and scope will remain enormous in this industry.
All rival operators are racing to grow fast to reap those benefits.Investors may have realized that long-term growth depends on capital being diverted to productive purposes. However, reasons for cases where firms do not show positive gains after an M&A announcement can be that it is not always easy for a company to achieve synergies and to reap scale and scope. High integration costs and differences in corporate culture are reasons why M&A fail to add value.
This shows investors’ skepticism about the likelihood that the acquirer will be able to achieve these synergies required to justify the premium paid (Selden and Colvin 2003).Besides the positive abnormal returns derived from M&As of telecommunication operators, four other conclusions can be drawn from the empirical results:(1) The results weakly suggest that M&A involving firms that operate in the same or related industry are wealth-creating but they do not necessarily perform better than telecom firms that follow a broader diversification strategy through M&A.(2) Telecommunication operators engaging in cross-border M&A generally experience positive abnormal returns and outperform firms that expand domestically.(3) Cross-border M&A activities in emerging markets do add value to the acquirer but do not result in significantly higher abnormal returns for the acquirer.
(4) Cross-border and non-conglomerate mergers are found to add value to the acquiring telecommunications operator, while no significant stock reactions are found for acquirers engaging in domestic and conglomerate mergers.2. Are there any variables that influence the impact of mergers and acquisitions on shareholder wealth?- What variables influence the impact of mergers and acquisitions on shareholder wealth? – What are their directions and level of effect?There are variables that do influence the impact of mergers and acquisition on shareholders wealth. Some of those variables are:Firm Diversification: A natural way to refine the empirical analysis of M&As is to look at the extend to which M&As can be seen as part of a diversification strategy, and what specific kind of diversification strategy they represent.
In general, firms find it often easier to follow a focused strategy in the industry in which the firm is currently operating, than to diversify into an unknown industry in which they lack experience (Hitt, Ireland and Hoskisson 2005). However, in the current global environment, a diversified firm can exploit strategic advantages that are generally not available to their undiversified competitors. Diversification is generally defined as the extent to which firms operate in different industries simultaneously and has proven to have a statistically significant influence on the value of the firm (Jose, Nichols and Stevens 1986).This is to say that the diversification in the merging firms brings about a change in the mode of management and this is done to bring about a better efficiency and output thereby affecting the wealth and returns on shareholders.
Emerging Market: First, we have to look at the definition of an Emerging market. The World Bank defines emerging market as one with low-to-middle per capita income but potentially dynamic and rapidly growing economy where companies can seek lucrative opportunities for medium to long-term investments.The size of the market and the competitiveness also has a great effect on the wealth of shareholders. This is because companies that are racing for global leadership have to consider competing in emerging markets.
The business risks in these countries are considerable but the opportunities for growth are huge, as their economies develop and living standards climb towards levels in the industrialized world (Thompson, Strickland and Gamble 2005). Chari et al. (2004) examined shareholder value gains from developed-market acquisitions of emerging-market targets between 1988 and 2003. They found that joint returns for developed-market acquirers and targets are significantly higher when M&A transactions in emerging markets are announced.
METHODOLOGYI will use case study method on the auto industry which was the merger between Nissan and Renault. Qualitative studies are based on data and information that cannot be quantified.This method is used when the investigator collects a lot of information about a few units in order to get a global perspective of the problem. The kind of data needed for qualitative research, also called “soft data”, can be cultures, attitudes, beliefs, values, emotion, socio-professional differences, etc.
I will use a qualitative study as I will gather information by conducting personal research journals and newspaper articles. The aim of checking these journals will be to go deeper into the analysis of the perceptions and feelings of the employees and shareholders within Renault about the acquisition of Nissan. I will also check on books on merger and acquisitions. This will help me get a better understanding on the merger between Nissan and Renault.
It is an important issue to grasp the perceptions of other authors on the alliance to make some recommendations on how Renault should handle the human side of the alliance.On the other hand, the data collected for a quantitative research are data that can be quantified. But this time, the research will be based on a large amount of units on which less data are collected. Thus, this makes the research broad.
I will make use of quantitative research in order to broaden my analysis. I will also check out for any report on the progress of share holders since the alliance. This will aid my research to provide the information on the success of the shareholders.REFERENCES1.
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