Corporate acquisition rearrangement



Corporateacquisitionrearrangement is a big part of the corporate finance world. Every day we see investment bankers arrange acquisition transaction, which bring disconnected companies together to form larger ones. Not specifically, such kind of acquisitions make the news, were deals can be worth hundreds of millions or even billions. They can dictate the future of the company for the years to come. Odds are such that we hear at least one headline which announces acquisition transactions. This gives an explanation of controlling principles of opinion or phenomena are particular to entice by charm or attraction to companies when they are tough. Strong companies join hands together to gain a market share or to achieve greater efficiency because of thesecapable benefits, target companies often agree to be purchased when they know they cannot be in existence alone. (Mergers and Acquisitions, 2010)

Many acquisitions fail due to poor planning, lack of communication incompetent implementation of strategies. Acquisitions play an important role for corporate strategic redirections and restoration. However, the pace of acquisition research and acquisition activity has never gone hand in hand. A variety of motives may be proposed for undertaking acquisition activity, including increasing shareholder wealth, creating more opportunities for managers. An acquisition is an alliance of corporations united to achieve a common share value. (Mergers and Acquisitions, 2010)


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The frequency with which M & A activities are observed suggest that there are strong reasons why it makes sense for two or more firms to consolidate into one or one firm to purchase another. Typical motives identified in the theoretical Industrial Organization literature are the desire to achieve or strengthen market power and the search for efficiency gains by being able to exploit economics of scale and scope (Caves 1989, Roller et al. 2001). The Financial Economics (market for corporate control) literature suggests that M&A are used to correct internal inefficiencies, agency problems and capital market imperfections (Manne 1965, Jensen and Ruback 1983).

Nevertheless, despite the many advantages M&A could offer, the statistical evidence supporting the hypothesis that profitability and efficiency increase following M&A is at best weak, while there is considerable variation from the central tendencies (Mueller 1980, Ravenscraft and Scherer 1987, Lichtenberg 1992, Jensen and Ruback 1983, Berkovitch and Narayanan 1993). The problem with most existing studies is, as Caves (1989) argues, that they disregard the issue on how value is created through M&A and hence fail to identify the conditions that should hold for M&A to positively contribute to firms performances.


In sharp contrast with the extensive literature that exists on the impact of M&A on the financial and economic performance of companies, only a limited number of studies focus directly on consequences of M&A on the company's technological activities. (cassiman & colombo, 2006) A significant number of studies have examined the short term announcement effect and the long term capital market performance of acquiring firms. For the short term announcement effect, previous MERGING AND ACQUISITION research has found that corporate control transactions in form of mergers or acquisitions are in general associated with significant wealth creation. Jensen and Ruback (1983) summarize early findings from the 1950's to 1970's with positive returns to bidders and targets. (dirk schiereck, 2009)

The long term post acquisition performance of acquiring firms has been analyzed since the 1970's and can be categorized by three major research phases. Which contains the earlier work of the 1970's and 1980's Since the appearance of significant long term abnormal returns contradicts the commonly held efficient market hypothesis (EMH) the interest in long term behaviour increased in 1980's. Other studies following thus period include Barnes (1984), Bradley and Jarrell (1988), and Franks and Harris (1989). Agrawal and Jaffe (2000) provide a comprehensive overview of this various earlier studies. (dirk schiereck, 2009)

Franks et al. (1991) represents the turning point in the analysis of long term post merger performance. Their study was exclusively devoted to the long term performance of acquiring firms. The authors clearly set themselves from simple statistical approaches by introducing the combining calendar and event time approaches and setting benchmarks. (dirk schiereck, 2009)


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Measuring the value creation from pharmaceutical mergers is challenging for two reasons. First, the majority of mergers took place in the period 1994-96 in which the measures such as changes in accounting profits or patent counts helped post mergers. Second, the pharmaceutical industry is very dynamic. Announcements concerning new drug discoveries, regulatory changes legal matters alliances and individual drug cash flow projections are common. Given this constraints the best measure is the stock market. In consistent with the findings from the general population of mergers occurring since 1980 (e.g., Bradley, Desai, and Kim 1988), the target share holders gain and bigger share holders loose in the typical pharmaceutical deal. Pharmaceutical acquisitions differ across a number of key characteristics. The impact of this characteristic on the abnormal return to the target, bidder, and combined firm is explored. (ravenscraft & long, 2000)

With respect to share holder value creation two characteristics stand out- large horizontal mergers and cross-border transactions. Large horizontal mergers are defined as the combination of two of the top thirty firms whose primary industry is pharmaceutical deals. Deals that cross national boundaries also earn impressive returns for all share holders. This positive impact of cross border acquisitions supports the general theoretical and empirical work on international acquisitions (Harris and Ravenscraft 1993). Cross border deals expand global marketing by pushing one firm product through the other firms sale force. (ravenscraft & long, 2000)