Creating Value from Mergers and Acquisitions

Transcription

1 '2ncT edition Creating Value from Mergers and Acquisitions The Challenges Sudi Sudarsanam Financial Times Prentice Hall is an imprint of Harlow, England London New York Boston San Francisco Toronto Sydney Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town Madrid Mexico City Amsterdam Munich Paris Milan

2 CONTENTS Preface to the second edition Preface to the first edition Author's acknowledgements Publisher's acknowledgements 1 Do mergers and acquisitions add or destroy shareholder value? The five-stage (5-S) model Stage 1: How good is the corporate strategy development process? Stage 2: How well does the company organize for acquisitions? Stage 3: What are the pitfalls in deal structuring and negotiation? Stage 4: Don't count the chickens yet! Post-acquisition integration Stage 5: How did the merger go? Postacquisition audit and organizational learning of the book Outline of the book PART ONE HISTORIC, CONCEPTUAL AND PERFORMANCE OVERVIEW OF 2 Historical overview of mergers and acquisitions activity The wave pattern of takeovers in the US Takeover activity in the European Union Historical overview of takeover activity in the UK Mergers in emerging markets Overview of the merger waves Why do merger waves happen? Rational economic models of merger waves Impact of industry changes on M & A activity Behavioural models of merger waves XIII xvi xix xxi It's not all 'high buys low'; 'low buys high' too 41 Strategic implications of industry clustering of M & A 41 Case Study: Pharmaceuticals suffer from the urge to merge Alternative perspectives on mergers The economic perspective on mergers 50 Industry analysis of competition 54 Game theory and competitive moves 57 Strategy perspective on mergers 62 Dynamic capabilities and mergers 69 Corporate and business strategies 71 Finance theory perspective on mergers 72 Managerial perspective on mergers 78 Organizational perspective on mergers 79 Summary of the multiple perspectives on mergers, 80 Case Study: 'The Best a Man or a Woman Can Get' - P&G and Gillette bridge the gender gap in their brands! Are acquisitions successful? Defining success of mergers and acquisitions 87 Measuring the impact of acquisitions on shareholder returns 88 Review of stock market assessment of acquisition performance 91 Results of empirical studies of merger impact on stock returns 94

3 Assessing the operating performance of acquirers 101 Overview of the operating performance studies 107 Post-merger performance of alternative corporate strategies 107 Mergers, managers and corporate governance 108 Post-merger performance and M & A deal characteristics Wofes and references 111 Appendix 4.1: Abnormal returns methodology to study the impact of mergers on shareholder value 113 Appendix 4.2: Studies cited in Tables 4.1 to PART TWO ] ^CORPORATE STRATEGY AND ORGANIZINGi FOR^jACjOJJ SITIONS 5 Sources and limits of value creation in horizontal and related mergers Motivations for horizontal mergers in mature industries " 124 Revenue enhancement through mergers 126 Cost savings as a source of value creation in acquisitions 131 New growth opportunities as a source of value 140 Resource-based view (RBV) of acquisitions and value creation 141 Evidence of lack of sustainable competitive advantage 147 Case Study: Heavy truckers trundle their way to market dominance Sources and limits of value creation in vertical mergers Vertical integration 157 Benefits and costs of buying in markets 159 Benefits and costs of long-term contracts 160 Benefits and costs of vertical integration 162 Vertical mergers and value creation 165 Empirical evidence on vertical mergers and their value effects 166 Vertical mergers that blur industry boundaries 167 Outsourcing through acquisitions 170 Case Study: Hospital, heal thyself Sources and limits of value creation in conglomerate acquisitions Pattern of conglomeration in different countries 181 Why do firms diversify? 184 Resource-based view of conglomerate acquisition 187 Finance theory of conglomerate diversification 189 Managerial perspective on conglomerate diversification 192 Organizational perspective on conglomerate diversification 194 Summary of alternative perspectives 195 Review of empirical evidence on the value of conglomerate diversification 196 Valuation of conglomerates in other countries 201 Evidence on operating performance 202 Is the internal capital market efficient? 203 Case Study: Messier bets Vivendi on his grand vision and pushes it towards bankruptcy! Cross-border acquisitions Alternative overseas expansion strategies 218

4 Recent trends in cross-border acquisitions Factors influencing cross-border mergers Why do corporations undertake crossborder acquisitions? Barriers to cross-border takeovers Valuation and financing of overseas acquisitions Post-acquisition integration Empirical and survey evidence on CBA performance Case Study: Cross-border acquisitions bring power to companies 9 Strategic alliances as an alternative to mergers and acquisitions Types of strategic alliance International joint ventures Model of a joint venture Structuring a joint venture Performance evaluation of joint ventures Critical success factors in strategic alliances Choosing between an acquisition and an alliance Case Study: General Motors (GM) and Ford drive on different roads to same town 10 Corporate divestiture Rationale for corporate divestitures Forms of corporate divestiture Corporate sell-offs Corporate spin-offs Equity carve-outs Stock market arithmetically challenged in pricing equity carve-outs? The downside of downsizing 296 Tracking stock 296 Overview of the divestiture methods 298 Case Study: Marriott's bondholders taken for a spin (or for a ride?) Leveraged buyouts Leveraged buyout 307 Organizational and legal structure of the private equity firm 308 Types of LBO 313 Overview of the LBO markets in the US and Europe 315 Sources of LBO targets 319 Exit from LBOs 320 Characteristics of optimal LBO targets 323 Organizing the buyout and role of the PE sponsor 323 LBOs in major European countries 332 Managerial motivations for an MBO 335 LBO as a superior business organization 336 Value creation performance of LBOs 341 Future of the LBO market in the US and Europe 344 Case Study: The tale of two stores: Safeway and Kroger Acquisition decision process: organizational, psychological and governance perspectives Acquisition decision-making process: organizational perspective 352 Acquisition decision process: psychological perspective 355 Narcissistic CEOs and acquisitions 359 Imitative acquisitions: institutional theory perspective 361 Acquisition decision-making process: compensation incentive perspective 362

5 Acquisition decision-making process: governance structure impact 366 Managing acquisition decision-making 372 Survey evidence on the acquisition process 376 Case Study: Deutsche Boerse CEO and Chairman pay with their jobs for lesson on shareholder activism! Real options framework for valuing targets 449 Financial options and real options 450 Case Study: 'They also lose who only stand and wait' - when option value is eroded by competition Appendix 14.1: Real options in mergers and acquisitions Target selection for acquisition Target selection process Strategic choices and acquisition Platform strategies Serial acquisitions Deal considerations Profiling desirable targets Due diligence Case Study: How Beecham approached its merger with SmithKline Beckman PART THREE DEAL STRUCTURING AND NEGOTIATION 14 Target valuation Sources of value in acquisitions Valuation models Estimating target equity value using the Rl model Estimating target value using the PER model Enterprise value multiple Asset-based valuation Valuation using other multiples Discounted cash flow model Impact of tax on target valuation Accounting for mergers and acquisitions Consolidated accounts 467 Types of business combination 467 Accounting for business combinations 468 Accounting for goodwill Paying for the acquisition Methods of payment for acquisitions 483 Tax aspects of acquisition financing 486 Impact of bidder's financial strategy 490 Earnings dilution in a share exchange 490 Valuation risk and payment currency 496 Equity derivatives and risk management in equity offers 497 Payment currency versus financing 502 Leveraged cash financing 503 Deferred consideration financing 509 Factors determining financing method choice 511 Empirical evidence on the impact of payment method on financial performance 513 Case Study: Choosing the better acquirer: MCI faces a dilemma!

6 17 Antitrust regulation Economic rationale for antitrust regulation 530 Assessing the effects of mergers on competition 533 Competitive constraints on merging firms 536 Merger regulation in the European Union 537 The UK merger control regime 545 Merger regulation in the US 551 Antitrust regulation in continental Europe 555 Critique of merger control regimes 555 Regulatory risk to M & A deals 557 International Competition Network 559 Stock market reaction to merger references 560 Case Study: William Hill takes a bet on Stanley Leisure and swallows OFT remedy 18 Regulating takeover bids Rationale for takeover regulation Takeover regulation in the UK European Union Takeover Directive Regulation of takeover bids in,continental Europe Takeover regulation in the US Takeover regulation and takeover activity Case Study: UK Takeover Panel doesn't buy the Big MAC 19 Advisers in takeovers Role of advisers in acquisitions Role of investment banks Lawyers Accountants Other advisers Public and investor relations Case Study: What are investment banks' duties and to whom are they owed? Bid strategies and tactics Bid strategies 628 Bid tactics 636 Developing a negotiation strategy 637 Negotiating a friendly bid 641 Post-acquisition integration and deal negotiation 643 Hostile bid tactics 646 Institutional investors and bid outcome 647 Bid strategies and tactics in the US 651 Empirical evidence on bid strategies and value creation 655 Bid strategies and tactics in continental Europe: impact of the Takeover Directive 657 Case Study: Mittal breaks Arcelor's steely defence and becomes the Emperor of Steel! Defences against takeovers Bid resistance motives Bid defence strategies Impact of defensive strategies Takeover defences outside the UK Takeover defences in continental Europe Takeover defences in the US Case Study: State anti-takeover laws in the US and how they protect targets

7 PART FOUR POST-ACQUISITION INTEGRATION AND brganizational LEARNING 22 Organizational and human aspects of post-acquisition integration From strategy to integration 696 A post-acquisition integration model 698 Political and cultural perspectives on integration 700 Change management perspective on post-acquisition integration 709 Human resource management issues during integration 711 Problems in integration 716 Stages in the integration process 722 Project management approach to integration 723 What do managers think about acquisition integration and performance? Survey evidence 725 Survey evidence on acquisitions and the human factor 726 Critical success factors 728 Case Study: Spanish conquistador arrives in England: Santander the new Armada? Post-acquisition audit and organizational learning Do acquirers assess acquisition performance? What are the performance metrics? Organizational learning perspectives Exploitative and exploratory learning Acquisition-making as a core competence 758 Case Study: Learning from past acquisitions Meeting the challenges of mergers and acquisitions Importance of the five-stage model 766 Challenges in competitive strategy planning 769 Challenges in organizing for acquisitions 771 Challenges in deal structuring and negotiation 772 Challenges in post-acquisition integration 773 Challenges in post-acquisition audit and organizational learning Index 777