BUSINESS WEEK: The Case Against Mergers -- Even in the '90s, Most Still Fail to Deliver.NEW YORK--(BUSINESS WIRE)--October 19, 1995--Have the mergers of the '90s worked better than the debt-laden leveraged buyouts leveraged buyout, the takeover of a company, financed by borrowed funds. Often, the target company's assets are used as security for the loans acquired to finance the purchase. and bust-ups of the '80s? Not by much. Most '90s deals still fail to deliver. An exhaustive analysis by BUSINESS WEEK and Mercer mer·cer n. Chiefly British A dealer in textiles, especially silks. [Middle English, from Old French mercier, trader, from merz, merchandise, from Latin merx Management Consulting Noun 1. management consulting - a service industry that provides advice to those in charge of running a business service industry - an industry that provides services rather than tangible objects Inc., a leading management consulting firm, of hundreds of deals completed in the first half of this decade indicates that their performance has fallen far short of their promise. The results of the analysis appear in the new issue of BUSINESS WEEK (Oct. 30 issue date), out today. Deals that were announced with much fanfare, such as AT&T's 1991 acquisition of NCR (NCR Corporation, Dayton, OH, www.ncr.com) A technology company specializing in financial terminal transactions, retail systems and data warehousing. Until the late 1990s, NCR was heavily invested in the hardware side of the industry, known worldwide as a major manufacturer of computers and Matsushita's 1991 acquisition of MCA MCA in full Music Corporation of America Entertainment conglomerate. It was founded in Chicago in 1924 by Jules Stein as a talent agency. In the 1960s it bought Decca Records and Universal Pictures, and today it produces films, music, and television shows. , have since unraveled. Others, including KeyCorp's 1994 merger with Cleveland's Society National Bank, acquisitions by big pharmaceutical manufacturers of drug wholesalers, as well as software and entertainment deals, aren't aren't Contraction of are not. See Usage Note at ain't. aren't are not aren't be producing the results the acquirers had hoped for--nor are they likely to produce good results in the future. The anecdotal anecdotal /an·ec·do·tal/ (an?ek-do´t'l) based on case histories rather than on controlled clinical trials. anecdotal adjective Unsubstantiated; occurring as single or isolated event. results are supported statistically, The BUSINESS WEEK/Mercer analysis indicates that companies performed better in the wake of '90s deals, most of which have been done ostensibly os·ten·si·ble adj. Represented or appearing as such; ostensive: His ostensible purpose was charity, but his real goal was popularity. for business reasons, than they did after '80s transactions, a high proportion of which were financially driven. But the analysis also concluded that most of the '90s deals still haven't have·n't Contraction of have not. haven't have not haven't have worked. Of 150 recent deals valued at $500 million or more, about half destroyed shareholder wealth, judged by stock performance in relation to Standard & Poor's industry indexes. Another third contributed only marginally to it. Using a large sample and comparing total return three months before the merger announcements with returns up to 36 months afterward af·ter·ward also af·ter·wards adv. At a later time; subsequently. Adv. 1. afterward - happening at a time subsequent to a reference time; "he apologized subsequently"; "he's going to the store but he'll be back here , the BUSINESS WEEK/Mercer analysis used the S&P industry indexes to filter out, as much as possible, other external events affecting acquirers' returns. In other key findings of BUSINESS WEEK's study: --Most transactions fall below expectations, but many more companies lose than win in the M&A game. --Nonacquirers are more likely to outperform Outperform An analyst recommendation meaning a stock is expected to do slightly better than the market return. Notes: Exact definitions vary by brokerage, but in general this rating is better than neutral and worse than buy or strong buy. their respective industry indices than are active acquirers. -0- Table:
The Worst Megadeals of the 1990s
Acquirer/Adviser Target Value in Completed CAGR(a)
$Billions
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Medical Care Intl. Critical Care .85 1992 .055
First Boston America
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Quaker Oats Snapple Beverage 1.70 1994 .726
Lazard Freres
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Novell WordPerfect 1.42 1994 .773
Morgan Stanley
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Time Inc. Warner 12.84 1990 .790
Wasserstein/SLH Communications
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Bankamericorp Security Pacific 4.21 1992 .892
Morgan Stanley
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Costco Wholesale Price Co. 1.57 1993 .951
Donaldson Lufkin
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Eli Lilly PCS Health 4.10 1994 .971
Lehman Bros
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AT&T NCR 7.53 1991 1.020
Morgan Stanley
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Mellon Bank Corp Boston Co. 1.45 1993 1.077
Goldman Sachs
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Matsushita MCA 7.41 1991 NA
Nomura Wasserstein
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Data: BUSINESS WEEK, Securities Data Co., S&P's Compustat
(a) CAGR: Compound annual growth rate in market value divided by industry index, based on acquirer total return 3 months before announcement and 36 months thereafter, or longest time period available
Source: BUSINESS WEEK/October 30, 1995
CONTACT: Christine Summerson (212) 512-2882 Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the : csummerson@businessweek.com |
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