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Business case
Mergers and Acquisition
Bad Growth Strategy for Shareholders and Primary Stakeholders
Main Street Capitalism (MSC) management practices would ban all executive performance bonuses
resulting from a corporate takeover deal, including ‘change of control’ golden parachute termination
packages.
MSC’s objective is to lessen the economic havoc foisted onto primary stakeholders by managers’ capitalism
high-risk “something stupid” takeover decisions. When asked why he kept so much cash on hand ($40
billion) instead of investing it, Warren Buffet replied, “I would rather do nothing than “something stupid.”
Mergers and acquisition affairs are known to spread economically transmitted diseases that reduce premerger
shareholder value, eliminate well-paying, quality, jobs, dilute local government tax revenues and
upsets social harmony.
An A.T. Kearney study of 115 global mergers in the mid 1990s showed that the total return to shareholders
(relative to peer companies) was minus 58%! BUSINESSWEEK: October 19, 1995 The Case Against
Mergers -- Even in the '90s, Most Still Fail to Deliver. BUSINESWEEK: October 14, 2002 MERGERS Why
Most Big Deals Don’t Pay Off showed that 61% of buyers destroyed shareholder wealth. Since 2002, as
reported herein, Managers’ Capitalism Sagas #1, #2 and #3 on the next page, mergers are still as bad a
growth strategy as ever for shareholders and primary stakeholders.
As shown in Insert 3-1, primary stakeholders are always the losers in a corporate merger. CEOs and key
players are the only sure winners in a M&A affair.
Insert 3-1 Economic Aftermath of an M&A
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| Primary Stakeholders | Economic Aftermaths |
| Shareholders | At least 6 out of 10 times, the combined pre-merger shareholder value of the two companies will decrease after the merger. |
| Customers | Little new added value. Prices will not decrease. Service may not increase. |
| Employees | Well-paying jobs from common tasks will be eliminated. Companies will lose key skilled employees who don’t like the new management culture. |
| Pensioners | Because of loss in market share value, a US employee’s 401(K) contribution retirement plan may also lose value. |
| Suppliers | When a local Head Office moves away and jobs are lost, local suppliers will lose business. |
| Governments | Because of the loss of well-paying jobs’ withholding tax remittances, the Total Tax Contribution will decrease. |
| M&A players: CEOs; executive
teams of buyers and sellers; investment houses; banks; accountants; lawyers; merger consultants. |
Each of key M&A player stands to earn multi-million dollar in bonuses and in professional service fees. |
With no chance of personal financial gain, CEOs may grow the business with cost effective improvements to
its value chain outputs and by making smarter, less high-priced, merger decisions. Smart corporate
collaborative market initiatives may create greater financial wealth for shareholders and primary
stakeholders than M&As.
The promise of the elimination of millions of dollars in redundancy labour and administration operating costs
is a prime reason given for how a merger is to create financial shareholder value. However, the failure to
achieve organizational cultural synergy between to the two merging organizations is quite often the main
reason that mergers fail.