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Hi, need to submit a 1500 words paper on the topic Theory and Practice on Mergers and Acquisitions.
Hi, need to submit a 1500 words paper on the topic Theory and Practice on Mergers and Acquisitions. Still, M&A activity continues to be the only trend to grow. The cases for BP Amoco and GlaxoSmithKline are taken as examples for evaluating whether value had been created to shareholders after the consolidation.
Theoretically, mergers and acquisitions create shareholder value by assisting companies in the exploitation of new resources like technological advances. increasing the knowledge base, thus capacity and so many other perceived benefits. Statistically and historically, however, mergers and acquisitions destroy shareholder value rather than otherwise. Several independent sources have accounted for conflicting evidence as to the actual value created by M&A transactions. although most of them indicated that M&As destroy more than creating shareholder value nearly all in terms which are cultural and structural by nature (Hay Group, 2007). McCann (2004) states that a merger proposal alone could radically reduce the value of the bidding firm while target firms realize positive gains on the average. Cole et al. (2006) replicate this finding. They further state that in horizontal merger proposals, firms could experience outstanding negative cumulative returns and rarely recoup as bids conclude.
Berkovitch and Narayanan (1993) forward three critical motivational hypotheses behind mergers and acquisitions: synergy. hubris. agency. These rationales create an impact on both the target’s and bidder’s shareholder wealth. In a synergistic view, firms expect to create strategical, operating (e.g. gaining access to new markets, economies of scale and economies of scope), and financial synergies (e.g. reduction of the variability in the cash flow, increase debt capacity). Views regarding the manager’s hubris relate to something more personal, leading to overpayment instead. Agency views are associated with agency costs from efficiency loss influenced by information asymmetries.
