M&A and shareholder value

According to Angwing (2007), the M&A during 1996-2011 increased by more than $23.4 trillion. The scale of M&A is getting greater and becoming the major way of expanding business nowadays. The argument is raised up along with the rapid growth whether the M&A can create shareholder value. In the case study of Time Wanner and AOL the shareholder value is harmed by the M&A deal. At first the shareholder price was leveled up to $334.75 by the M&A deal, but one year later the loss from the M&A deal was up to $98 billion, which accounted for 97%of shareholder value.

Another case is Lenovo and PC business of IBM in 2005. The M&A deal helped Lenovo to expand its business overseas. The M&A deal made Lenovo the third greatest PC manufacturer in the world. But Lenovo did not stop the continuous loss from the PC business and the loss in 2006 was up to $21million loss. The overseas market share also was harmed by the M&A deal.

Overall 80% of M&A deal turned out to be profit loss 3years later. The M&A is quite a risky deal, but why still so many companies go to M&A every year? Actually, M&A is a means to build up controlling power in market for companies. Via M&A companies can become more influential in the market and this gives companies a power to affect the market price and seek a monopolistic position in market. It generates the high expectation for shareholder value that a monopolistic position will create more values. In the short term the M&A harms the shareholder value. But if the M&A deal can bring about an influential power even a monopolistic position for the companies, the M&A is still beneficial for shareholder value in long term.