The Portable MBA in Finance and Accounting, 3rd Edition

Profitable Growth by Acquisition 565

measure, the 1990s was an increasingly acquisitive decade around the world.
This explosion in deal making might lead one to assume that mergers and ac-
quisitions are an easy way for corporate managers to create value for their
shareholders. To assess this, we now examine the empirical evidence on merg-
ers and acquisitions. Let’s begin with the wealth of academic studies that ana-
lyze M&A performance.^1
M&A activity has been the focus of volumes of academic research over
the last 40 years. The evidence is mixed, but we can draw several clear con-
clusions from the data. We break our discussion into two pieces: short-term

EXHIBIT 17.1 M&A activity, 1981–1999.a

aData is for deals valued at at least $5 million and involving one U.S. company.

SOURCE:Mergers & Acquisitions,September 2000.

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

Year

Number of deals

Value (billions)

Number of deals (left axis)

Total value (right axis)

0

2,000

4,000

6,000

8,000

10,000

12,000

0

200

400

600

800

1,000

1,200

1,400

1,600

EXHIBIT 17.2 A decade of megadeals.

Price

Year Bidder Target (billions)

1990 Time Inc. Warner Communications $ 12.6

1991 AT&T Corp. NCR Corp. 7.5

1992 BankAmerica Corp. Security Pacific Corp. 4.2

1993 Merck & Co. Medco Containment Services 6.2

1994 AT&T Corp. McCaw Cellular Inc. 18.9

1995 AirTouch Communications US West Inc. 13.5

1996 Walt Disney Co. Capital Cities/ABC Inc. 18.9

1997 Bell Atlantic Corp. NYNEX Corp. 21.3

1998 Travelers Group Inc. Citicorp 72.6

1999 Exxon Corp. Mobil Corp. 78.9

2000 America Online Inc. Time Warner Inc. 156.0

SOURCE:Mergers & Acquisitions,September 2000.