Mergers and Acquisitions (Cost-Benefit and Value Assessment)

Author: Chen Zhuming
Publisher:
Publish Date: 2003-11-01
Features: In the first part of the book, the author points out that the main costs of mergers are the search costs before the merger, the ownership costs paid to the original shareholders during the merger, and the integration costs after the merger. The author then conducts a comparative static analysis of the cost structures of horizontal mergers, vertical mergers, and pure conglomerate mergers. By introducing organizational capital as a factor of production into the cost function, the study examines the costs, revenues, and externalities of horizontal mergers in the Cournot monopoly model. By assuming that the degree of vertical integration is not an exogenous variable but a constant, the author proposes modifications to the dominant firm model by American scholar Nordhaus. Through an analysis of the phenomenon of Chinese listed companies merging with network companies from 1998 to 2000, the author explores the relationship between conglomerate mergers and signal transmission, constructs a signal transmission model for listed companies and network companies, and builds a secondary signal transmission model. The second part of the book studies various theories and methods of value assessment in corporate equity mergers and conducts an empirical analysis of the pricing issues of Chinese listed companies in equity mergers. The analysis shows that the main basis for pricing equity mergers of Chinese listed companies is the book value of net assets, with a premium added on this basis. The empirical results on the prominent role of shell resource value in the pricing factors of listed companies also indicate that different value assessment models yield significant variations in results under the same market parameters. Therefore, in practice, the accuracy of the application results of seemingly rigorous value assessment models is questionable. Finally, the second part also conducts an empirical test of the core factors of value creation after corporate mergers—synergy effects. The test results support the hypothesis that Chinese listed companies' equity mergers can generate synergy effects, proving that the focus of listed companies' merger behavior remains the acquisition of controlling stakes to obtain future financing qualifications and access to more social resources at low cost.