Financial Strategies in Mergers and Acquisitions (M&A): The Case of Regulated Firms

-- Helder Valente

This paper presents a general model of strategic behavior of (regulated and non-regulated) firms in M&A. The focus of the paper is on regulated firms (mostly monopolies). For such firms, the model shows that managers, acting on behalf of shareholders, make their strategic decisions on debt issuing and investment, in anticipation of both the decisions of the regulatory body and the responses of financial markets. These decisions are aimed at influencing the probability that an acquisition occurs, as well as the price the potential bidder will have to pay. However, such decisions are also made with a view to influence the regulatory policies (maximum price or rate of return permitted), thereby mitigating the probability that, in the regulatory game, the regulator adopts an opportunistic behavior.

© 2006 IUP . All Rights Reserved.

A Study of the Operating Synergy Gains to the Acquiring and Target Firms in the Indian Cement Industry

-- Kavita Pathak

Synergy theory is a strong branch of mergers and acquisitions (M&A) literature. Traditionally, synergy studies in M&A context have focused on two critical aspects of synergy—financial and operational. Operating synergy or operating economies may be involved in horizontal or vertical mergers, both of which create economies of scale. These economies, in turn, may reflect indivisibilities and better utilization of capacities after the merger; or important complementarities in organizational capabilities may be present that would result in gains that are not attainable from internal investments in the short-run. The Indian cement sector has seen a lot of M&A activities in the last two decades. The prime motivation has been achieving significant economies of scale or operating synergy. The industry is expected to significantly consolidate in the future. This paper is an attempt to trace some of the mergers and acquisitions in the Indian cement industry, in order to capture the operating synergy accruals. The results partially support synergy accruals for the target and acquiring firms in the Indian cement industry.

© 2006 IUP . All Rights Reserved.

Mergers and Acquisitions in the Colombian Financial Sector: Impact on Efficiency (1990-2005)

-- Sergio Clavijo, Carlos I Rojas,
Camila Salamanca,Germàn Montoya and Camilo Rizo

Colombia has witnessed a renewed interest in merging and acquiring financial institutions during 2003-05. These have been "complementary mergers" that seek to exploit economies scale and scope. This process contrasts favorably with those mergers and acquisitions that occurred during the mid-1990s, which involved mainly "twin institutions" that lacked the potential for gaining multiproduct efficiency. This paper analyzes the need to remove some of the regulatory constraints that obstruct further exploitation of such economies of scale-scope and quantifies the "cost efficiencies" shown by the Colombian banking sector (1994-2005). At the aggregate level, (absolute) banking efficiency was found to be around 63%, a similar value to those found in related post-crisis studies. This implies that banks operating in Colombia have been able to recover their efficiency levels during the post-crisis 2003-05, except for mortgage institutions. The study highlights regulatory barriers that could be removed to help the banking system move closer to the optimal production frontier.

© 2006 IUP . All Rights Reserved.

Mergers and Acquisitions Best Practices: Softer Side of the Deal

-- Siddhartha Sankar Brahma

Recent evidence shows that majority of the mergers and acquisitions fail in achieving the strategic and financial benefits. While it is true that some of these failures can be largely attributed to financial and market factors, recent studies point to human resources issues as the main reason for merger and acquisition failures. Human resource problems are often overlooked by managers. Problems surface as the integration process starts. This paper highlights some critical human resource issues in mergers and acquisitions and suggests some guidelines as to how these issues are resolved.

© 2006 IUP . All Rights Reserved.