6 - Failure of Merger and Acquisition

Last week, I discussed about how firm could gain advantages by using FDI, and this week is something seminar to FDI, as this is one of method in FDI, Merger and Acquisition (M&As). To those multinational enterprise who seek for competitive advantages in their industry, sometimes they do not have a competitive advantage or even a competitive disadvantage, and thus they will use M&As to cover it. The concept of M&As is to help company grow quickly in their industry, or enter a new market, without using joint venture or create a subsidiary. According to Arnold (2012), he defines that there are a number of M&As motives, such as market power, entry to new markets and industries, risk diversification, acquire superior management skills, and technological innovation. From above we could see that M&As lead an enterprise to a successful model.

Although M&As has a lot of advantages to lead a company to success, it still have some factors to consider with, for example, company A may merger with a fake performance of company B, once they merger, the overall of the business maybe doing badly, and also when they merger, it will exploit company A share price increase, however when the news come out with the overall of their business has no increase as the market expected, their share price will drop afterward.  

The example was HP, HP made a deal with Autonomy which bid 12bn USD. The company was planning to move away from making computer industry into the software business. Although this would be a market power for HP as Autonomy is a existed player for over 10 years and they are the industry-leading technology in the industry and this could lead HP more profitable, Autonomy had misled HP which provided a fake report to HP, which causing HP over bid to the company. When the news came out, HP share price dramatic dropped around 12%, this was the 10years lowest point.

From this case, HP was overbid Autonomy as they think the position of Autonomy in software industry was essential, however Autonomy through falsify, conceal, and other techniques to conceal the company's financial position, and misled HP acquisition valuation, which causing HP loss over bid fund and damaged their share price value.

To sum up, enterprise could gain advantages from Merger and Acquisition which lead company increase their profit, and improve their management skill. However, they also need to aware of the company to merger that they are choosing, as they could conceal and mislead the bidder and as a result it could damage to their company.