BUSF_A01.qxd

Chapter 14 • Corporate restructuring

The object of these tactics is probably to increase the share price of the target to a

point where the bidder’s offer looks low and will be rejected.

Quite often, these battles are long and bitter, with claims of one side being met with

counter-claims from the other, and offers being increased, until eventually an offer is

accepted or the bidder withdraws. The battles can be damaging; they are expensive

and, if the merger finally takes place, much bitterness can be carried into the manage-

ment of the merged business.

The results of the battle are not necessarily all bad. Much new information about

both parties tends to be forthcoming in statements, and this enables the market to

value the businesses better.

Are mergers successful?

Having looked at why and how mergers occur, it seems appropriate to ask whether or

not they appear to be successful. Numerous studies have considered this question.

These have fallen broadly into two types:

l those that have asked managers of merged businesses whether they consider the

merger to have been successful or not; and

l those that have looked at the returns available to the shareholders of merged busi-

nesses to see whether these were better than they were likely to have been had the

merger not taken place. Returns in this context are capital gains, plus dividends for

the period as a percentage of the share’s market value at the start of the period.

Table 14.3Causes of failure of UK mergers

Cause of failure % of interviewees who mentioned

the factor as a cause of failure

Management attitudes 85

Lack of post-acquisition integration planning 80

Lack of knowledge by the bidder of the target and its industry 45

Poor management and management practices in the target 45

Little or no experience of the bidder management in acquiring

other businesses 30

Source: Coopers and Lybrand (1993)

Opinions of managers

The general conclusion of managers seems to be that the mergers had not been

beneficial. Coopers and Lybrand (1993) interviewed senior managers of 50 large UK

businesses that had been involved in a merger. The conclusion was that 54 per cent of

mergers were not financially successful. The reasons for the perceived high failure

rate, according to the managers interviewed, are set out in Table 14.3.

Though this evidence is not very recent, there seems not to be a more up-to-date

study. The fact that this 1993 study was remarkably consistent with the results of a

study undertaken by Coopers and Lybrand in 1973 suggests that the situation may not

be too different today.