Study on Mergers. A Rationale for Conglomerate Mergers.

摘要

Mergers are an on-going process in the business environment. They correspond to the combination of two (or more) firms into a unique business concern. This study is grounded on the notion that looking at mergers from a financial point of view may provide a valid platform for analyzing merger movements. The fundamental development of this study is an equilibrium model for determining the market value of a firm when the managerial team is assumed to have better information than the market. It is shown that when a firm with superior information does not have sufficient internal resources (financial slack) to undertake a project, the full value of future investiment opportunities is not necessarily captured in the market value of the firm. This conclusion is obtained because there are situations in which, by taking the project and bringing in new shareholders, old shareholders lose (from the dilution of their holdings in the firm) more than what they get from the extra value added by the new project. The dependency of market value from slack availability opens the possibility of justifying mergers via tender offers. In this context, the merger may be understood as a way to inject resources from a 'cash rich' to a 'cash poor' firm. The expected payoff of this game is positive and equal to the loss in market value due to insufficient slack.