Mergers, Acquisitions and Divestments : Economic & Financial Aspects of

Corporate Control

Course Instructor: Prof. Anirvan Pant/ Prof. Sushil Khanna

Course Objectives:
The objectives of this course are two-fold. First, the course is intended to provide a
comprehensive background in the strategic, economic, financial and organizational aspects of
mergers, acquisitions, and divestments. Secondly, the course will seek to provide a practical
framework for managerial decision-making in the context of acquisition activities, for example
the determination of exchange ratios between the common stocks of the acquired and acquiring
companies. Being a seminar course it will feature inputs from the instructors, and readings and
case study presentations by the students, and a project actually studying a recent merger.

Course Content:
The topics to be covered are theory and evidence on the economics effects of the different kinds
of acquisition activities; with focus on the two main types, namely mergers and tender offers;
basic evidence on inter-firm tender offers, divestitures and spin-offs, and proxy fights; antitrust,
taxation and other legal issues in mergers and acquisitions; theory and evidence on the economic
effects of anti-takeover activities; evidence on the value of corporate control; and theory and
evidence on the effects of competition among acquiring companies for target firms.

Other topics to be covered include the valuation of target firm, determination of exchange ratios
between the common stocks of the acquired and acquiring companies, issues in organizational
control and post-merger performance etc. Strategic issues in diversification strategy based on
acquisitions shall form an important part of the course The growing trend of cross-border
mergers will also be elucidated. The regulations on merger activity in India and other countries
will also be discussed. Evidence from Indian experience in mergers and post-acquisition
performance shall be provided, wherever possible.

The following is the list of topics to be covered:

1. Conceptual Framework
2. Mergers in Growth & Diversification Strategy
3. Merger Valuation and Corporate Strategy
4. Anti-takeover Defensive Tactics
5. Accounting and Taxation Issues
6. Inter-firm Tender Offers & Mergers: Basic Evidence
7. Wealth Effects of Merger Activity & Stock Price Reaction
8. Value of Corporate Control and competition for Corporate Control
9. Organisational Impact of Takeover Activities
10. Antitrust Issues and Mergers
11. Post-merger Performance
12. Strategic Issues in Cross Border Mergers

Text:
The reading material for the course will consist of selected articles published in Economics,
Finance, and Strategy journals and a book “Mergers, Acquisitions and Corporate
Restructurings” by Patrick A Gaughan (Wiley India) A reading list will be provided along
with photocopies of articles. Some books will be on available on the RESERVE basis for the
duration of the course.

To complete the course successfully, the students will be required to satisfy the following four
types of requirements:

1. Presentation of assigned reading material in class/class participation 30%

2. Class Quizzes and Tests: 30%
3. Report on an assigned project 40%

While presenting a specific reading, the student shall be expected to highlight, amongst other
things, (a) The main objective or hypothesis, (b) review the empirical evidence, (c) conclusions
drawn from the evidence, (d) theoretical or policy issues raised in the paper, (d) compare the
results/conclusions to other papers presented before (or later) on the course (e) highlight the main
learning and their relevance to India.

One or two students shall be asked to comment on the presentation and the class participation
marks given on basis of their intervention. In other words, all the students are expected to read
all the articles

All students will have to study a recent merger/takeover. The project will be carried out in two
parts. The first part of the project will address issues of strategy, competition, industry structure
and valuation of the target firm. Schedule of project submission and detailed lecture / discussion
plan will be announced later
 Indicative List Readings
(Will be modified and changed with recent papers/ case studies) :

A: (1-4) are survey articles, describing research on reasons for mergers, market for control and
corporate governance, evidence on stock price reaction and wealth effects of mergers, their
division between target and bidding firm shareholders etc.)

1. Jensen, M.C. and R.S. Ruback, "The Market for Corporate Control: The Scientific
Evidence," Journal of Financial Economics (JFE), April 1983.

2. Andrade, G., Mitchell & Stafford, “New Evidence and Perspectives on Mergers”, Journal of
Economic Perspectives, Vol.15(2),2001

3. Jensen, M.C, “ The Takeover Controversy”,

4. Holmstrom, B. and Kaplan, “Corporate Governance & Merger Activity in US: Making sense
of the 1980s & 1990s,” Journal of Economic Perspectives, Vol. 15(2) 2001.

B: 5-10, discuss the conflict between managers, directors and shareholders, the alternative
hypothesis on the reasons for wealth effects of merger announcement (like market power or
information effect) and their testing.

5. Jensen, M. & Warner, “Distribution of Power Among Cooperate Managers, Share holders
and Directors.” JFE, 20,1988.

9. Bradley, M., Kim and Desai, “The Rationale Behind Interfirm Tender Offers: Information or
Synergy?” JFE, ii,1983.

10. Stillman, R. “Examining Antitrust Policy Towards Horizontal Mergers,” Journal of

Financial Economics , 1983

11. Eckbo B.E., “Horizontal Mergers, Collusion, and Stockholder Wealth”, Journal of Financial
Economics 11 (1983)

C: Readings 11 & 12 discuss defences and their impact on shareholders; while redaing 13 looks
at diversification objectives and its wealth effect.

12. Ruback R. S., “An overview of Takeover Defenses”.

13. Linn, S. and J. J. McConneoll, "An Empirical Investigation of the Impact of `Anti-
takeover' Amendments on Common Stock Prices," Journal of Financial Economics, April 1983.

d: Readings 13-17 are on post merger analyses. They provide evidence on post merger
performance and also on the process that seems to distinguish value creating mergers from those
that destroy shareholder value.
14. Economist “Merger Brief”, July-August,2000

15. Ravenscraft, D.J. and F.M.Scherer, "The Profitability of Mergers", International Journal of
Industrial Organisation, 7 (1989).

16. Kugler, K, D.C.Mueller, B.B.Yortoglu and C. Zulehner, “The Effects of Merger : An

International Comparison”, mimeo, University of Vienna

17. Healy, P.M., K.G.Paleper and R. S. Ruback, “Which Takeovers are Profitable? Strategic or
Financial?” Sloan Management Review, 1997.

18. F. M. Scherer. “Corporate Takeovers: The Efficiency Argument”, JEP, Winter, 1988

E: The last three readings provide us with insights into the integration process and issues for
making mergers a value creating activity.

19. Haspeslagh Philippe C. and David B. Jemison, “Acquisitions – Myths and Reality”. Sloan
Management Review, 53, 1987.

19 . R. A. Ashkenas, “Making the Deal Real : How GE Integrates Acquisitions”, HBR, Jan 1998

20. Baker, George Pand K.H.Wruck, “Organisational Changes and Value Creation in Leveraged
Buyouts” Case of O.M.Scott & Sons Co.,” JFE, 25,1989.

F : (Cases/Readings 1-2 are important in demonstrating the method used to estimate merger
gains using Event Study Method. The cases of Conoco and Cities Services also serve as a model
for the project all students shall be expected to undertake by studying a contemporary merger.

21. Ruback, R. S., "The Conoco Takeover and Stockholder Returns,” Sloan Management
Review, Winter 1982, Vol 23, No.2

22. Ruback, R.S., The Cities Services Takeover”, Journal of Finance, May 1983.

23. Beatrice : A Study in the Creation and Destruction of Value.

24. Arrow Electronics : The Schweber Acquistion.

Books:
Textbook (From Office):. P A Gaughan “Mergers, Acquisitions and Corporate
Restructurings” Fifth or Sixth Edition (Wiley India)

BOOKS FROM LIBRARY :

1. Weston, J. F., K.S. Chung & S.E Hoag, Mergers, Restructuring, and Corporate Control,
Prentice Hall, New Delhi, 2007
2. Auerbach, Alan J.(ed), Mergers and Acquisitions, University of Chicago Press, Chicago,
1988.
3. Peter O. Steiner, Mergers Motives, Effects, Policies, University of Michigan, Ann Arbor,
1975
4. Kenneth M. Davidson, Mega-Mergers, Ballinger Publishing Company, Mass., 1985
5. S.J.Lee & R.D.Coleman, Handbook of Mergers, Acquisitions and Buyouts, Prentice Hall,
New Jersey. 1991
6. Hubbard, Nancy, Acquisition: Strategy and Implementation, Macmillan, 1999