Merger and Acquisition Strategies
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Merger and Acquisition Strategies

How to Create Value

  • New Perspectives on the Modern Corporation series

Angelo Dringoli

The decision to carry out a merger or acquisition is certainly a risky one, not least because of the number of variables influencing the final outcome. It is also a decision frequently based on the wrong objectives and an incorrect evaluation process. With this in mind, this important new book offers solutions for reducing the high percentage of mergers and acquisitions (M & As) that fail. It adopts a normative approach, using theoretical analysis to show what managers could and should do to increase shareholders’ value through successful M & A strategies. It also explores the conditions that are suitable for favouring a certain type of M & A (horizontal, vertical or diversified) over the others. In conclusion, the book presents case studies of successful M & A strategies providing a link between theory and practice.
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Chapter 7: Diversified M & As

Angelo Dringoli

Extract

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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