Maximizing Corporate Value through Mergers and Acquisitions E-Book

Patrick A. Gaughan

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 655

Veröffentlichungsjahr: 2013

Beschreibung

Solid guidance for selecting the correct strategic basis for mergers and acquisitions Examining how M&A fits in corporate growth strategies, Maximizing Corporate Value through Mergers and Acquisitions covers the various strategic reasons for companies entering mergers and acquisitions (M&A), with a look at those that are based on sound strategy, and those that are not. * Helps companies decide whether M&As should be used for growth and increased corporate value * Explores why M&A deals often fail to deliver what their proponents have represented they would * Explains which types of M&A work best and which to avoid With insider guidance on what boards of directors should be aware of when evaluating proposed deals, Maximizing Corporate Value through Mergers and Acquisitions provides a sound foundation for understanding the risks involved in any mergers and acquisitions deal, before it's too late.

Leseprobe

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Guide

Cover

Contents

Begin Reading

List of Illustrations

CHAPTER 1: Merger Growth Strategy

FIGURE 1.1 (a) Number and (b) Value of U.S. M&A in the 1980s

FIGURE 1.2 (a) Number and (b) Value of U.S. M&A in the 1990s

FIGURE 1.3 (a) Number and (b) Value of U.S. M&A in the 2000s

CHAPTER 2: Growth through Mergers and Acquisitions

FIGURE 2.1 HP (a) Revenues, (b) Net Income, and (c) Shareholder Equity

FIGURE 2.2 Cisco's Share Repurchases: 2003–2012

FIGURE 2.3 J&J Sales by Division

FIGURE 2.4 J&J Operating Profit by Division

FIGURE 2.5 Yen/Euro 2007–2012

FIGURE 2.6 Yen versus Australian Dollar: 2007–2012

CHAPTER 3: Synergy

FIGURE 3.1 Average Costs and Economies and Diseconomies of Scale

FIGURE 3.2 Consolidation of the Cruise Industry

CHAPTER 4: Diversification

FIGURE 4.1 United Technologies Sales by Segment ($ in Millions)

FIGURE 4.2 Revenues by Business Segment (millions of euros): 2011

FIGURE 4.3 3M 2011 Revenues by Business Segment ($ in Millions)

FIGURE 4.4 Sara Lee Sales by Segment: 2004 ($ in Millions)

CHAPTER 5: Horizontal Integration and M&A

FIGURE 5.1 U.S. Wireless Market by Number of Subscribers

FIGURE 5.2 Sprint Nextel Profitability: 2005–2012 (a) Net Revenues ($ Millions) and (b) Net Profit and Loss ($ Millions)

FIGURE 5.3 Sprint Nextel Long-Term Debt ($ in Millions): 2004–2012

FIGURE 5.4 Consumers Benefit More from a Competitive Market. They Buy More Output (X

c

) than in a Monopolized Market (X

m

) and Pay Less (P

c

< P

m

).

FIGURE 5.5 Money-Losing Monopolist

FIGURE 5.6 World's Largest Iron Ore Suppliers, 2011

FIGURE 5.7 Top 15 Largest Steel Producer Companies, 2010–2011

FIGURE 5.8 (a) ArcelorMittal Revenues and (b) ArcelorMittal Net Profits

CHAPTER 6: Vertical Integration

FIGURE 6.1 Luxottica Financial Performance: (a) Net Profit Margin, (b) Revenues ($ millions), and (c) Net Profit ($ millions)

FIGURE 6.2 Comparative Revenues: Pepsi and Bottlers

FIGURE 6.3 Prices of (a) Oil ($ per Barrel) and (b) Gasoline ($ per Gallon)

CHAPTER 7: Growth through Emerging Market M&A

FIGURE 7.1 U.S., European Union, and Japanese Annual GDP Growth

FIGURE 7.2 Japanese and Korean M&A, 1991–2012

FIGURE 7.3 China's Growth in (a) Real GDP and (b) per Capita GDP

FIGURE 7.4 Breakdown of (a) U.S. and (b) China's GDP

FIGURE 7.5 India's (a) Real GDP Growth and (b) per Capita Real GDP

FIGURE 7.6 Chinese and Indian M&A (in $ millions)

FIGURE 7.7 Indonesia Stock Market (JKSE) versus S&P 500

FIGURE 7.8 Philippine Stock Market (PSEI) versus S&P 500

FIGURE 7.9 Vietnamese Stock Market (VN-Index) versus S&P 500

FIGURE 7.10 China and Mexico's Foreign Direct Investment

FIGURE 7.11 Comparative Unemployment Rates, November 2012

FIGURE 7.12 Tesco U.K. Same-Store Sales

FIGURE 7.13 Caterpillar Sales (a) 2006 and (b) 2011

FIGURE 7.14 U.S. versus China Vehicle Sales: 2000–2011

CHAPTER 9: Role of Corporate Governance in M&A

FIGURE 9.1 Coca-Cola Stock Price Response to Quaker Oats Bid

FIGURE 9.2 Board Size and Tobin's q: (a) All Firms and (b) Simple versus Complex Firms

CHAPTER 10: Downsizing: Reversing the Error

FIGURE 10.1 U.S. M&A versus Divestitures, 1980–2012

FIGURE 10.2 U.S. Divestitures

FIGURE 10.3 Divestitures, 1985–2012: (a) Europe and (b) Asia

FIGURE 10.4 International Spinoff Volume, 1985–2012: (a) United States, (b) Europe, and (c) Asia

FIGURE 10.5 Pepsi's Growth in Size and Decline in Profitability: (a) Pepsi Revenues ($millions), (b) Pepsi Employees, (c) Pepsi Net Income ($millions), and (d) Pepsi Net Profit Margin

FIGURE 10.6 Viacom's Stock Performance Compared to the Market

CHAPTER 11: Valuation and Merger Strategy

FIGURE 11.1 Volume of Debt Sold for Private-Equity Dividends

*

Annualized using October 19, 2012, data.

FIGURE 11.2 Premium Paid over Market Price: 1980–2011

FIGURE 11.3 HP's Stock Price Compared to the S&P 500

List of Tables

CHAPTER 2: Growth through Mergers and Acquisitions

TABLE 2.1 Johnson & Johnson: Growth through Acquisitions Strategy: Sample Acquisitions

CHAPTER 7: Growth through Emerging Market M&A

TABLE 7.1 Top 15 Countries by Population and Their per Capita GDPs

4

TABLE 7.2 Largest Latin American Economies (in billions of 2005 dollars)

TABLE 7.3 Comparative Annual Percent Change in Real GDP.

TABLE 7.4 Largest Acquisitions by the Tata Group.

CHAPTER 10: Downsizing: Reversing the Error

TABLE 10.1 Shareholder Wealth Effects of Voluntary Selloffs.

CHAPTER 11: Valuation and Merger Strategy

TABLE 11.1 Median P/E

*

Offered: Public versus Private, 1990–2012.

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Copyright © 2013 by Patrick A. Gaughan. All rights reserved.

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ISBN 9781118108741 (Hardcover)

ISBN 9781118224229 (ePDF)

ISBN 9781118262351 (Mobi)

ISBN 9781118237335 (ePub)

Preface

Mergers and acquisitions (M&A) are an integral component of the growth strategy of many corporations. M&A often allows companies to achieve more rapid growth relative to what they would experience through internal or organic processes. However, that growth comes with a price.

The risks that come with M&A are often poorly understood and underestimated. Too often only the potential benefits of a deal are considered while the risks tend to be downplayed. This leads to companies overvaluing targets and paying premiums that are too high.

For many companies M&A has been the key to their success. For example, Cisco and Johnson & Johnson would not be the great successes they are without their M&A programs. In addition, because these companies have done so many deals, they have sharpened their ability to identify valuable targets and to integrate them into the overall company after the deal. However, even for such experienced acquirers there are significant M&A failures.

M&A is one of the most researched fields of finance. A rich body of high-quality, pragmatic research studies have explored all aspects of M&A. For example, many studies have explored the impact of M&A on acquirers and targets and have shed light on which types of deals are value enhancing and which are wealth destroyers. Another large body of research literature has explored many aspects of corporate governance as it relates to M&A success or failure. These are just a couple of examples of the bountiful supply of research that is available to practitioners. Amazingly, however, the bridge between the corporate world of practitioners and dealmakers and the academic researchers has yet to be firmly put in place. This is surprising, as in other areas of finance, such as investments, practitioners have aggressively taken advantage of relevant studies to enhance the value of their work.

While M&A has been used very successfully to facilitate the growth of many companies, there are a troublingly high amount of major M&A failures. Amazingly, some companies seem to be unable to learn from their mistakes and repeat their M&A failures—sometimes on an ever-larger scale. Some boards seem to lack the ability to discern between a value-enhancing M&A and ones that will result in a significant loss of shareholder wealth.

This book explores the various ways that M&A can successfully help companies enjoy profitable growth. It seeks to identify the keys to successful M&A while also highlighting some of the pitfalls and ways that M&A can backfire and stunt growth. In doing so, the book seeks to take a step toward building that bridge between practitioners and researchers. It attempts to summarize many of the pragmatic research studies that shed light on the types of M&A that build corporate value as well as the aspects of deals that tend to destroy value.

In addition to focusing on M&A, we also analyze the circumstances when less-expensive alternatives, such as joint ventures and strategic alliances, can achieve some of the same strategic goals as M&A. For deals that did not work out, we explore the positive shareholder wealth effects of downsizing. Various downsizing alternatives exist, including divestitures, equity carve outs, and spinoffs. Research shows that each typically generates positive shareholder wealth effects while they differ in the circumstances in which one would better fit shareholder needs.

We adopt a frank approach to accessing deals that turned out poorly. Too often, CEOs propose deals that cause shareholders to lose the value of their equity but the CEOs are able to avoid blame. In a troubling number of cases, CEOs get rewarded for doing deals yet incur no penalties when these deals turn out badly. Boards are often reluctant to blame the CEO while also refusing to blame themselves for a company's M&A failures. Hewlett-Packard's board is a perfect example. We explore the failure of the corporate governance system while also emphasizing the types of governance that results in M&A that enhances growth rather than destroy value.

CHAPTER 1Merger Growth Strategy

Mergers and acquisitions (M&A) can accelerate a company's growth probably more than most other means within its arsenal. This is particularly true of larger deals. However, as we discuss, the track record of M&A success is spotty at best. The key is determining a priori the deals that will be winners and the ones to avoid. The problem is further complicated by the fact that management may sometimes seek to pursue M&A for their own personal benefit, which may work against the interests of shareholders.

As we discuss at length in this book, there is a large body of research on the effectiveness of M&A and the impact that M&A has on shareholder wealth. In fact, M&A is one of the most researched topics in the field of finance. There is a large body of high quality pragmatic studies that scrutinize M&A decisions and the impact they have on the shareholders. These researchers, primarily academics, have devoted considerable time and effort to trying to determine the answers to questions such as “Do diversifying deals or M&A outside of a company's established expertise have positive or negative effects on the wealth of their shareholders?” This is one example of an important question that M&A decision makers could answer better if they were aware of the relevant research. However, one of the surprising facts of the field of M&A is that decisions makers, CEOs, and their boards of directors, generally have no awareness of this large body of quality research and make no effort to try to look into it further. As we discuss throughout this book, the answer sometimes lies in the fact that they have their own agenda and are not interested in uncovering facts and evidence that would not be supportive of that agenda.