The merger is the legal way two companies can unite as a single entity. When done correctly, it can help in making a positive impact on the shareholder's value. It has been seen in the past that companies going in for mergers have seen exponential growth in terms of sales. As the managerial agency, handling the turnarounds shareholder value in Fort Lauderdale, points out mergers can provide a strategic boost to the stockholder value by exploring new areas and conquering the greater portion of the market – if everything goes according to the plan.
It can impact the stock prices, and give the shareholders a new lease in the market. However, most of the time the share prices might witness an initial dip for soaring high. Let’s delve into the matter more details.
Impact on the stock prices
Before the merger, most of the time the share prices of the company shares fluctuate. These changes in the share prices are mostly caused by,
- Capitalization in the market
- How the merger is being carried on
- Overall economic condition
As a thumb rule, the acquired agency witnesses a surge in the share prices, whereas the buying company might witness somewhat dip in its share prices. After the merger has successfully taken off, the newly formed company can surpass the share value of its parent companies. With favorable economic conditions, the shareholders can expect greater returns.
Isn’t it a fantasy?
The previously mentioned outcome regarding the mergers is possible when everything is going according to the plan. But, in a real-life situation, minute things can disrupt the balance and lead to unwanted results. In real life, more than a few industries have witnessed a massive fall in their shareholder value after the merger. There are a few cases where value has seen a steep rise, but these incidents are quite low in number.
Here are the few issues that can impact the shareholder value:
- Overestimating the company value
Overestimation of the company’s value can lead to unfavorable results post-merger. When fraudulent accounting practices are added into the equation, it can lead to more risky mergers and lesser shareholder value.
- Distracted managers
More often, the mergers distract the manager from doing their jobs even after the deal is sealed. According to the study presented by Warton, it was found many executives were running at a sub-par performance. The paper also revealed mangers might need some time to run at their top speed – costing the company its value.
Apart from that, the human emotions and the brands handling its human resources decide how successful the new brand would be in the future. After two brands merge and collaborate, becoming one, it’s bringing in new people into the equation.
When these new people find themselves welcomed into the group, it can be a win-win situation for both of them. Unfortunately, in most cases, mergers just bring in cultural conflict, which can lead to devalued shareholder stakes.
Are you planning on going on a merger? You can talk to the White Knight Holdings LLC, the turnarounds shareholder value Fort Lauderdale experts, before signing the dotted lines. Click on the link, http://whiteknightholdings.com/, or call (888)930-1441 to know more.
No comments:
Post a Comment