Impact on shareholder wealth due to steel mergers - Essay Example

The present chapter focuses on the issues of mergers and acquisitions carried out certain companies in order to gain access and expand their horizon in the market and thus increasing their productivity as well as income. Shareholder value is greatly influenced by all types of mergers and acquisitions. Peter A. Hunt (2004:6) states that only well conceived and well executed transactions reward the shareholders resulting in an increased stock price. He further states that companies continue to merge with equal or lesser powerful companies and intend to acquire smaller companies in order to increase their shareholder value keeping in view their long term management process.

It is also stated that mergers, acquisition and restructurings are pivotal in building value for shareholders and company's operating performance, its capital structure and its public perception are three elements that form the foundation of shareholder value. (Peter A. Hunt, 2004: 4) There are many instances when the companies in order to expand their business operations have targeted the companies that are running in losses. The process of merger or acquisition creates a huge hara-kiri among the international business community and shareholders which has huge impact on the shareholder value.

The primary motive o. A merger is a transaction between larger or equal partners while acquisition is a transaction wherein the larger company takes hold of the smaller company. Successful acquisitions and mergers are intended to increase the profitability of parent firm and stock price. Leeth and Borg in their studies 'The Impact of Mergers on Acquiring Firm Shareholder Wealth' have found that the shareholders of the target company are most benefited. (http://eh.net) To examine this statement the present chapter attempts to present an analyses of the data collected from various sources and present statistical details on the merger and acquisitions during few decades that will help to understand the impact of merger and acquisitions on the shareholder value.

The data analysis will also help to understand the impact of merger and acquisitions on the shareholder value and also the rate of increase or decrease in the shareholder value of the target firm as well as parent company that has arise due to the process. Data Analysis Merger and acquisitions have increased during this time of economic downturn where most of the company's mainly financial institutions are filing for bankruptcy. There are instances when companies in order to avoid bankruptcy have welcomed the decision of being merged with some other companies working in the same stream or let the other company acquire it.

Recently, the one of the world's biggest car manufacturer General Motors had filed for bankruptcy. The recession has led to downturn of many big industries all over the world, mainly United States. The diagram 1 below shows the details of mergers and acquisitions done in large in some of the countries. Diagram 1According to the diagram 1, the companies of United States and Canada are with most