Why Do Most Mergers and Acquisitions (M&a) Fail to Create Value for the Acquirer's Shareholders? What Are the Main Reasons in Your Opinion?

Merger motives that are questionable on economic grounds are diversification, purchase of assets below replacement cost, and control. Managers often state that diversification helps to stabilize a firm's earnings and reduces total risk, hence benefits shareholders. Stabilization of earnings is certainly beneficial to a firm's employees, suppliers, customers, and managers. However, if a stock investor is concerned about earnings variability, he or she can diversify more easily than the firm can. Why should Firm A and Firm B merge to stabilize earnings when stockholders can merely purchase both stocks and accomplish the same thing? Further, we know that well-diversified shareholders are more concerned with a stock's market risk than with its total risk, and higher earnings instability does not necessarily translate into higher market risk.

Mergers and acquisitions occur because directors see benefits that could come from combining two or more businesses, which could improve the

Mergers and acquisition plays an important role in survival/vitalization of a corporation in today’s market. It continues to be a breakthrough strategy for improving innovation of a company’s product or services, market share, share price etc.

find little evidence of wealth creation, with shareholders of the target firms gaining at the expense of the bidder firms. A merger is said to create value, if the combined value of the bidder or target firm increases on the announcement of the merger (Houston et al., 2001) (Ghosh & Dutta, 2015) (Campa, 2004). Moreover, the synergistic gains hypothesis of corporate acquisitions underlined by Isa & Yap (2004) states that, a combination of two firms will result in a combined gain that is, more than the sum of the value of the individual firm. These gains may be attributed to the increasing efficiencies and synergies of the companies involved.

There are mixed conclusions as to whether mergers have a positive effect on innovation and synergies, research, productivity of the new company. However, mergers and acquisitions appear to have a positive economic effect on the company in the short-term, allowing the company to reduce costs, it can have a negative effect on productivity and innovation longer term.

For example the mega merger between Hewlett Packard and Compaq shown stock markets reacting negatively to the announcement with shares in both companies collapsing after just two days. HP showed a decline of 21.5% and Compaq showing a decline of 15.7%.

To protect the business from the drastic downfall, many firms chose to take a step by making business combinations. Stepping towards M&A is a winning way to combine to successful alike business. With M&A synergy power of the two companies are combined to crater a business that is most suitable for the demand of the market and its stakeholders. Merger is a case where the acquired company deliberately delivers it assets and liabilities in the hands of the acquiring company. As a result, the company being acquired can survive another phases of competition in business cycle. However, the phenomena of merger and acquisitions of the two businesses would certainly leave an impact on its stakeholders; it may be negative or positive. Due to the financial stress of the company being acquired the stakeholders may feel the off-putting impact and hence it is quite obvious for the stakeholders to be nervous and uneasy at the kick-off of the initial phase of M&A.

Mergers and Acquisitions (M&As) chapter from the textbook (Verbeke 2013), the ideas and theories of M&As are mainly from the research by Ghemawat and Ghadar (2000). Besides, the complementary studies from (Sebenius 1998 and Inkpen 2000), added a different views and theories for M&As process. As these researches were performed back in 1990s and 2000s, therefore it is critical to have literatures update to this particular chapter. The M&As case study regarding Cemex Group will be used as an example for literature updates.

Mergers and acquisitions, better known as M&A, is a “…term used to refer to the consolidation of companies” (Investopedia, 2014). “Mergers can allow companies to combine forces and stake out a greater portion of market share” (Alli, 2010). A company may choose to merge with or acquire another company for a multitude of reasons such as “…maximize[ing] shareholder value. (Ferris & Petitt, 2013)”

Mergers and acquisitions have become an increasingly popular strategy for achieving corporate growth and diversification, with the M&A activity in the 1990's smashing all existing records, both in terms of the number of transactions and the size of the deals. The worldwide value of M&A increased from $462 billion in 1990 to over $3.5 trillion in 2000. Even though this unparalleled wave of M&A drop in the early 2000's as the global economy cooled off and slid into recession, the M&A volume worldwide remains at a much higher level than existed in

This brings me to the importance of acquisitions in Businesses. Acquisitions done at the right time can turn around the fortunes of any enterprise. For Example, Founded in 1911, the rapidly growing Swedish pharmaceutical company Pharmacia, showcased its first demonstration of market power with the purchase American rivals Upjohn in 1995 and Monsanto less than five years later. During that time Monsanto, had been developing the anti-inflammatory drug known as “Celecoxib”, which had been eyed by Pfizer during its development stages. Beaten to the punch by Pharmacia, the American Pfizer announced the purchasing deal of Pharmacia as a whole in July 2002 with the transaction tag of $60bn (U.S). Less than seven years later Pfizer would agree to purchase rival Wyeth for approximately $68bn (U.S). Today, Pfizer Inc. is worth as much as twice its value at $172bn (U.S). Taking another example, at one point Bank One Corp was the sixth largest bank in U.S.It was the first of many dominions that would be purchased by the millennials new born that is J.P Morgan Chase. After a string of successful mergers on its own, including its own consolidation of Chicago Corp and the National Bank of Detroit, Bank One’s buying

Asquith(1983) found that the stockholder gains and the successful merger bid are linked. And most of the gains from a merger go to the acquired firm’s stockholders, while the stockholders of the successful bidding firms earn little from the merger bid.

Investors expect the acquiring company to organically growth the new business and achieve certain milestones. An inability to do this results in lower valuation and loss of shareholder trust.

Literature on theories of M&A shows that the motives of companies incorporates M&A ,are gaining operating and financial synergy, diversification gaining economic of scale, increasing the market power and the increase of shareholders values.

Pitching an M&A deal to shareholders is much easier for companies than organic growth, which not only increase operating costs, but also requires more time and resources to result in profitability. 2007 was the record year for M&A deals with an estimate volume of $4.2 trillion until this record was beaten last year. 2015 became the biggest year on record for M&A with an estimated $5 trillion in deals, which is more than the GDP of Australia, Mexico and India combined. Major deals were struck across a wide range of industries, most notably in technology, telecommunications and healthcare. This report discusses what is driving this aggressive growth by companies through M&A, a highlight 2015’s biggest deal and predicts what M&A