Chapter

Value Creation and Value Appropriation in m&a deals

Sudi Sudarsanam

in The Handbook of Mergers and Acquisitions

Published in print June 2012 | ISBN: 9780199601462
Published online September 2012 | e-ISBN: 9780191743320 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199601462.003.0008
Value Creation and Value Appropriation in m&a deals

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This chapter considers valuation as a process that consists of valuing the expected benefits from acquisitions and of appropriating the created value for the benefit of the acquirer’s shareholders. Value appropriation is influenced by bidder and target characteristics, the structure of the acquisition deal, and negotiations between the acquirer and the target firm. The negotiation process is not a clinically rational process and is influenced by the behavioral biases of managers and the agency conflicts between them and their shareholders. The chapter introduces a range of valuation models and discusses their limitations. It reviews the empirical evidence for the way deal structure, deal characteristics, and firm characteristics influence value outcomes. It also highlights the way managerial biases and skewed managerial incentives can lead to failure to appropriate value from acquisitions. Managers who craft value-creating acquisitions may nevertheless fail in their value-appropriation strategies.

Keywords: valuation models; value appropriation; deal structure; managerial biases; agency conflict

Chapter.  26664 words.  Illustrated.

Subjects: Financial Institutions and Services

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