Essay on Failures of International Mergers and Acquisitions

Words: 8715
Pages: 35

Table of contents

Introduction 3
Types of Mergers 3
Types of Acquisitions 4
Motives behind M&A 5
Problems faced in Mergers and Acquisitions 6
Problems faced in Cross Border Mergers and Acquisitions 7
Sony's Acquisition of Columbia Pictures 8
Sony 8
Columbia Pictures 9
Analysis: Star Framework 9
Fig: Choice of Entry Mode 15
Failure of the Acquisition 15
Reasons for the Failure 16
Merger between Daimler-Benz and Chrysler Corporation 18
Daimler-Benz 18
Chrysler Corporation 18
Analysis: Star Framework 19
Reasons for the Merger 22
Failure of the Merger 23
Reasons for failure 23
Culture Clash 23
Mismanagement 25
Literature Review 27
Conclusion 29

Introduction
Mergers and acquisitions (M&A) and corporate
…show more content…
• Taxes: A profitable company can buy a loss maker to use the target's tax write-offs. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company.
• Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below).
• Resource transfer: resources are unevenly distributed across firms and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources.
• Vertical integration: Companies acquire part of a supply chain and benefit from the resources.
• Increased Market share, which can increase Market power; in an oligopoly market, increased market share generally allows companies to raise prices. Note that while this may be in the shareholders' interest, it often raises antitrust concerns, and may not be in the public interest.
These motives are considered to not add shareholder value:
• Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same