How to Create Value
New Perspectives on the Modern Corporation series
Chapter 7: Diversified M & As
In this chapter we analyse diversified M & As and how to estimate the value created by the merger. In particular, we only consider related diversified M & As , that is mergers producing operating synergies by the integration of businesses. We do not consider unrelated M & As, because these are directed at obtaining higher operating cash flows by restructuring firm processes and substituting managers, rather than at obtaining cost and revenue synergies by integrating firms. As diversified M & As imply the entry of the acquiring company into different industries, risks of failure are higher than in other M & A strategies.
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