大象传媒

Mergers (and regulation) create value shock!

• Paul Mason
• 3 Apr 06, 11:10 AM

With tying the knot today, in just the latest of the mega-takeovers there are a lot of people here in the world of cuff-links and Crystal (business I mean, not Newsnight) musing about how much good takeovers actually do. Quite a lot, says Scott Moeller, and he should know.

First, though a duffer's guide: a merger is where two companies merge; an acquisition is where one buys the other. Together they are known as "M&A" and there are whole swathes of city people who specialise in making money from the transaction. Here's where the scepticism comes in...

...Sure the banks make money from engineering takeovers (they are rarely real mergers, and Lucent/Alcatel sure as heck is not). But in the past, "shareholder value" has been seen to be destroyed in some mergers. Either because the buying company engineers an exceptionally good price, or because the synergies don't work, or all the whiz-kids from the bought company then move on, leaving it as just a brand name. Or because the buying company has borrowed so much money that the company effectively becomes a milk-cow for interest payments and all the dynamism gets squeezed out in the process. Sometimes the board of the company being bought shows undue haste to consign themselves to oblivion.

Anyway Scott Moeller, who I sometimes phone up when I am baffled by a particularly illogical bit of M&A magic dust (because he is director of executive education at Cass Business School) has written a paper showing that the recent spate of M&A deals are actually creating shareholder value.

The merged companies he's studied are on average 7% ahead of similar companies that were not involved in M&A. Of course you can never be totally scientific at this level of analysis - the study includes companies involved in deals worth $400m+ but not megadeals like today's.

But I find the reasons he gives plausible. They are: a) companies getting better at merging their workforces b) better "due diligence" (the business equivalent of getting a builder's survey done on that house you're buying instead of saying "ooh I like the front door").

And c)? Sarbanes-Oxley. If you don't know what Sarbanes-Oxley is don't worry - it's a law in America passed in the wake of the Enron scandal and designed to stop company managers ripping off their shareholders. It has been much talked about in the world of stripy suits and Maseratis - mainly in negative terms. It is held to be a terrible regulatory shackle on entrepreneurship and an over-reaction.

Anyway, Scott suggests that, in part because of SOx (yeah, they call it that - add it to your bluffers' business vocabulary) mergers and acquisitions are being carried out, er, properly. It is evidence that greater company regulation actually protects the owners of these companies from the whims and occasional incompetence of managers. OK only one bit of evidence but it goes against the grain of sentiment.

To read the report click .