Mergers and Acquisitions

Paper Summary:

This paper states that a merge is recognized as a mutual decision between two companies to combine into a single legal entity; whereas, an acquisition is a purchase of a smaller company by a much larger one again resulting in one entity. The author points out that, if, in an M&A, especially in the technological area, the integrated firm has a larger knowledge base compared to the acquiring firm and if the acquired knowledge is not integrated quickly and functionally, then this situation can have a negative impact on the acquirer's innovative performance. The paper concludes that, with increased globalization, continued growth in cross-border M&As can be successful as long as the firms take into consideration the sensitive cultural and economic values involved. The paper includes two color graphs.

Table of Contents:
Introduction
Mergers and Acquisitions
The Rationale behind Mergers and Acquisitions
Post-M&A Performances of Technological and Non-Technological M&As
Cross-border M&As
Conclusion

From the Paper:

"Taking as an example the utility industries in the USA and Europe, according to James Hendrickson, a partner in the utility industry group known as Adventure, M&A is seen as a vehicle to create value. It is one of the main strategies adopted by most utility companies to consolidate the balance sheet and enhance financial performance. Hendrickson has also remarked that this strategy is used to increase presence in selected markets and to reduce operating costs by taking possession of specific assets. The author points out that M&A is a valid strategy to improve the difference between the market price of electricity and its cost of production (spark spread) and to level the portfolio with the purpose of controlling the fluctuation of operating costs."

Sample of Sources Used:

• Ahuja, G.., Katila, R., 2001. Technological acquisitions and the innovation performance of acquiring firms:a longitudinal study. Strategic Management Journal 22, 197 - 220
• Anadan, J., Delios, A., 2002. Absolute and relative resources as determinants of international acquisition. Strateg. Manage. J. 23, 119-134
• Brouthers, K.D., 2002. Institutional, cultural and transaction cost influences on entry mode choice and performance. J. Int. Bus. Stud. 33, 203-221.
• Hendrickson, J. July 2003. Mergers and Acquisitions as a Vehicle to Create Value in Uncertain Times, The Electricity Journal, Volume 16, Issue 6, Pages 66-75
• House, R., Javidan, M., Hanges P., Dorfman, P., 2002. Understanding cultures and implicit leadership theories across the globe: an introduction to project GLOBE. J. World Business. 37(1), 3-10.

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