Merger

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Template:Infobox Midpage Need Sponsor Right A merger of two companies, if it gains regulatory approval, means shareholders of both gain a roughly equal stake in the new company, unlike an acquisition where one side either swallows the newcomer whole or parks it under a holding company. Most corporate mergers are ultimately considered failures, mostly due to human more than corporate factors.

The urge

Although around 70 percent of all mergers (and combined M&As) worldwide fail to live up to promise, companies continue to seek them for several reasons, ranging from joining a competitor to boost market share to acquiring a loss-maker as a tax write-off.[1] Mergers are generally handled by investment banks that earn significant fees from such deals through buying and selling the two companies' shares. This leads some critics to accuse such banks of conflicts of interest in pumping up such deals and creating inflated expectations for the deal.

The human factor

Misplaced enthusiasm for the deal on both sides has sunk recent high-profile corporate mergers like AOL with Time Warner and Citigroup with Travelers, underlining the difficulties in getting mergers to work. Most flops are due to human foibles like failure to plan the transaction thoroughly, failure to think the merger through or a lack of objectivity, Wharton Business School reports, and losing good employees in the process is so common it is referred to as "merger syndrome".[2]

Meanwhile, rivals at Harvard Business School (HBS) have compiled a "nine deadly sins" list in typical merger failures and stressed the need establish an 'integration team' early on to avoid them.[3] The HBS paper also points out that 70 percent of the corporate mergers that fail do so at the execution stage of the deal, not during its original planning. The key, HBS concludes, is "selecting the right person or people to lead the program integration team and track the plan's execution."

History

On December 20, 1997, Eurex and ISE announced that they had completed a merger. At the time, the collaboration was called the largest transatlantic derivatives marketplace. [4]

U.S. regulator the Federal Communications Commission (FCC) in late July 2008 approved a merger between America's only two satellite-radio distributors, Sirius and XM, creating what some industry critics call an unfair monopoly.[5] Shares of both companies, which had been battling the FCC for more than a year to merge, rose after the decision was announced but soon returned to their normal trading range.

On February 9, 2011, talks surfaced of a merger between NYSE Euronext and Deutsche Boerse. [6] Also announced on the same day, advanced merger talks between the London Stock Exchange and the Toronto Stock Exchange. [7]

References

  1. What is a Merger?. WiseGeek.com.
  2. Why Do So Many Mergers Fail?. Wharton Business School.
  3. Nine Steps to Prevent Merger Failure. Harvard Business School.
  4. Eurex and ISE complete merger. ISE website.
  5. FCC approval allows for merger of XM, Sirius subscription satellite radio services—with stipulations. MerersUnleashed.com.
  6. NYSE Euronext and Deutsche Boerse in Advanced Talks to Merge. Bloomberg.
  7. LSE to buy Canada's TMX. Bloomberg.