Mergers and Acquisitions: Biases and How to Avoid Them

Mergers and acquisitions have become a growing trend for companies to inorganically grow a business within its particular industry. There are many goals that companies may be looking to achieve by doing this, but the main reason is to guarantee long-term and profitable growth for their business. Companies have to keep up with a rapidly increasing global market and increased competition. With the struggle for competitive advantage becoming stronger and stronger, it is almost essential to achieve these mergers. Through research I will attempt to dissect the best practices for achieving merger success.

Enron’s annual stockholder meeting in January 2001 was a study in corporate egotism. Executives met at a San Antonio, Texas hill country resort, and champagne and cigars were free for the taking. At this meeting, Lay boldly asserted that he expected Enron to become “the world’s greatest company.” On February 5, special bonus checks worth tens of millions of dollars were prepared for Enron executives. However, in what might have been the first outward sign of the trouble to come, Lay resigned as CEO in February 2001, keeping his position as chairman of the board, while Skilling was tapped to be his replacement.

Daryl Buckmeister, CEO of The Chicken Coop, must decide whether to invest in market research, how much money to spend, and which programs to fund. His two vice presidents (of quality and marketing) have presented very different proposals.

Around the time of the housing crisis in the US, Hollate Manufacturing underwent a series of major changes at key managerial positions. The former CFO, Jack Brennahan, became the new CEO. Brennahan helped conduct the search for a new CFO to fill his spot, and they eventually decided on William Blackburt. Blackburt was hired mostly due to his prior success at growing a manufacturer through acquisitions. Despite the recent economic downturn, Hollate had success with their first acquisition and IPO and were looking to continue to grow the company through further acquisitions. When Blackburt was hired, he negotiated aggressively for his compensation package to include significant bonus opportunities based on higher revenue growth. Shortly prior to Blackburt being hired, Hollate’s board also underwent some changes. Mike Soltany was the Audit Committee Chair. The two other members of the board were recruited by and were acquaintances of Brennahan’s. Eventually this board would become even closer with one another and with other members of management at the firm. Once operations got underway with Blackburt as the new CFO, he was an aggressive supporter of Hollate making further acquisitions. This strategy seemed to work for the company and things seemed to be looking up. The positive environment at Hollate and the personal relationships that formed among top managers led to a strong sense of trust among top management. Eventually, this sense of trust paired with the focus on meeting

At the very top of the company you had some executives where pride came into play. These guys were used to winning, they were used to being praised on Wall Street, and didn't want the

The case develops around Newell’s CEO Dan Ferguson, the protagonist, as he purchases two key acquisitions, the Calphalon company and the Rubbermaid company. Ferguson feels these acquisitions will assist the company in reaching its goal of a market capitalization of $10 billion, which will allow Newell to control a higher price per earnings multiple. “The company’s plan is to gain access to the capital markets by aggressively adding new products by acquisition”(Montgomery, 2005). The key to this approach was a two part strategy, the acquisition process and guaranteeing company continuity throughout the division to assist the company’s in its market performance. “Executives must balance a company’s growth with its ability to manage the growth”(Raisch and Krogh, 2007).

Some high-profile takeover targets share price for the steep discount, they signed the agreement price, showing cracks that may be lurking in the current trading boom. Such as Take Office Depot Inc. The company’s stock trades 29% below the price Staples Inc. agreed in February to pay for its smaller rival. I believe the growing number of investors worried about antitrust regulators will block an agreement, combined with the country's two largest office supplies chain. Cigna Corp.’s stock is 22% below the value of Anthem Inc.’s $48 billion offer, while oil-field-services provider Baker Hughes Inc. trades 17% cheaper than the price of its pending $35 billion sale to Halliburton Co.

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.

“ Immelt is a classic example of a rent-seeking CEO who may know what is good for his own company but not what produces economic growth and private sector job creation , ” Fred Barnes wrote in 2011 .

Given the potential for high returns from these types of M&A, it seems likely that if M&A is wealth enhancing, we should find this effect for the pharmaceutical industry. Finally, the monopoly or oligopoly structures that exist in several pharmaceutical product markets, support the expectation of abnormal returns from M&A, at least while patent protection is in effect (Bottazzi et al.,2001). Since over 80 percent of revenue is lost at the time of patent expiration and since the patent period is relatively short the window for abnormal returns in the long run may be limited (Berndt (2001).

Daryl Buckmeister, CEO of The Chicken Coop, must decide whether to invest in market research, how much money to spend, and which programs to fund. His two vice presidents (of quality and marketing) have presented very different proposals.

At the closure of the paper, recommendations are being presented not only to the portfolio manager but also to the AutoZone. Interestingly, how much of an impact can an interference of a corporate raider have on the growth of a company

Tyco International Ltd is a diverse manufacturer who grew tremendously in the 1990’s and early 2000’s. The company had big ambitions with an aggressive program of acquisitions during this period where they spent an estimated $62 billion to purchase more than 1,000 companies. However, unbeknownst to the shareholders of Tyco and the world, Tyco was led by a management team and CEO (L. Dennis Kozlowski) that did not use wise or truthful business practices and organizational behavior. In the following paper, I will examine the failure that occurred at Tyco, compare, and contrast contributions of leadership, management,

His over confidence lead to an over evaluation of his business (Hayward and Hambrick 1997) and resulted in him investing in now unprofitable ventures (Zacharakis and Shepard

Kelly (2013) segments Buffett’s leadership transition into seven stages: opportunist, diplomat, expert, achiever, individualist, strategist, and alchemist. During the first four stages, Buffett concerned himself with growing his investment and not on the impact of the organization’s reputation, employees’ welfare, or community and is why this category is unilateral power (Kelly, 2013). In the early 1960’s, his transactional leadership style tarnished his reputation following the sale of Dempster Mill (Kelly, 2013).