What are three bad reasons for a merger?

can’t find this…

Yeah, I had problems with this too. The only one I came up for sure was gaining personal benefits for managers (running a bigger firm = more pay, etc.). I thought bootstrapping might be one too since it doesn’t actually add value even tho the markets seem to like it.

Diversification is one…

Overpaying effect…(whatever its called)

both of aimee’s are right…with mine …that’s three!

winner’s curse?

yes… winners curse… thats what I was thinking of…Wouldnt that be a bad reason for a merger?

mumukada Wrote: ------------------------------------------------------- > Diversification is one… thats a bad reason?? Is it saying that diversification is bad if it conflicts w/ your corp stategy?

I would think to diversify businesses and become a conglomerate. Conglomerate returns are not higher than separate businesses. You can diversify yourself by buying different comapnies. Also, for pet projects of the boss. I want to own XYZ company for prestige.

“Managers may cite the need to diversify the firm’s cash flows as grounds for merger. This makes no sense for shareholders but may be rational for the managers.” “This finding demonstrates that mergers are NOT likely to increase value purely for diversification reasons”

akanska Wrote: ------------------------------------------------------- > mumukada Wrote: > -------------------------------------------------- > ----- > > Diversification is one… > > > thats a bad reason?? Is it saying that > diversification is bad if it conflicts w/ your > corp stategy? From an investor’s perspective it is much easier (and cheaper) to gain diversificantion through holdind the securities of other companies…not by having the companies they hold go through expensive mergers. Edit: Mumu got there first.

Ahh yes, that sounds vaguely familiar.

you guys are correct only if your talking about making conglomerate mergers…most mergers are vertical or horizontal… so the question asked 3 bad reason for a merger and I would assume thats any type of merger…in that case diversification would not be one… Edit…Just my thoughts

Another reason might be that the corporate cultures aren’t the same. They are different from one and another and it would be too hard to combine the cultures.

^^ agree with chad, agree with cfadummy

merger just to show growth could be a bad reason…?

I would say merger would subject to anti0trust law, and risk failing to creating synergy does these count?

Managerial Hubris.