Neen Academics have long known that acquiring firms’ shareholders rarely reap the benefits of mergers. However, this important information never seemed to. make it up to the offices of corporate America’s deci- sion makers; the 1990s saw bad deal after bad deal, with no apparent learning on the part of acquisitive executives. BusinessWeek published an analysis of 302 large mergers from 1995 to 2001, and it found that 61% of them led to losses by the acquiring firms! shareholders. Indeed, those losing shareholders’ returns during the first postmerger year averaged 25 percentage points less than the returns on other companies in their industry. The average returns for all the merging companies, both winners and losers, were 4.3% below industry averages and 9.2% below the S&P 500 The article cited four-common mistakes. The acquiring firms offen overpaid. Generally, the acquirers gave away all of the synergies from the mergers to the acquired firms’ share- holders, and then some, 2. Management overestimated the synergies (cost savings and revenue gains) that would result from the merger. 3. Management took too long to integrate opera- tions between the merged companies, This irri- tated customers and employees alike, and it postponed any gains from the integration, 4, Some companies cut costs too deeply, at the expense of maintaining sales and production infrastructures. The worst performance came from companies that paid for their acquisitions with stock. The best per- formance, albeit a paliry 0.3% better than industry averages, came from companies that used cash for their acquisitions. On the bright side, the shareholders of the companies that were acquired fared quite well, earning on average 19.3% more than their industry peers, and all of those gains came in the 2 weeks sur- rounding the merger announcement. Source: David Henry, “Margot: Why Mas! Big Daca Dont OF,” BusinessWeek, October 14, 2002, pp. 60-70. ae Scanned with CamScanner