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The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions by H. Kent Baker, Halil Kiymaz

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CHAPTER 17

Organizational and Human Resource Issues in M&As

SIDDHARTHA S. BRAHMA

Instructor, Corporate Training, Saudi Industrial Development Fund

INTRODUCTION

Mergers and acquisitions (M&As) worldwide have experienced remarkable growth as many companies, regardless of size, are using this strategy as an alternative way of expansion. In 2004, firms globally announced $1.95 trillion in deals and completed 30,000 acquisitions. Despite this mammoth growth, prior research reveals that nearly half of all acquisitions fail (Young, 1981; Porter, 1987; Hunt and Downing, 1990; Devine, 2003; Cartwright and Schoenberg, 2006). This high failure rate attracted the attention of scholars primarily from two disciplines—finance and strategy. The main interest of finance scholars is whether acquisitions create or destroy value for shareholders. Overall, the results show that target firm shareholders gain in the short term. In the long term, however, the benefits to the acquiring firm are doubtful (Bruner, 2004). Researchers from the strategy field focus on the roles of strategic fit and synergistic benefits as prime determinants of acquisition performance. Some argue that related acquisitions provide synergistic benefits that arise from economies of scale and, therefore, exhibit superior performance (Salter and Weinhold, 1979; Lubatkin, 1983). Based on this argument, researchers such as Chatterjee (1986), Lubatkin (1987), Singh and Montgomery (1987), Shelton (1988), and Seth (1990) test whether ...

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