Angwing (2007) point out that during the period of 1996 to 2005, the total amount of global mergers and acquisitions (M&A) is more than $23.4 trillion. The increasing amount and size M&A arose public attention about whether the M&A is really good for the organization and increase the shareholder wealthy. In particular, sometimes it destroys the shareholder’s wealthy, such as the case of the Time Warner and AOL. The merger of two companies seems to be great news to the industry in 2000 and the share price move up to $34.75, however, after the annual loss has been announced after the merger, the share price decrease immediately and in 2002 it has reported $98 billion loss, which destroyed 97% shareholder wealthy.
Moreover, it could also be found in the case of the Lenovo & IBM. In 2005, Lenovo take over the PC department of IBM by $1.25bn (£668m). As the failing PC price and squeezed profit margin in China, Lenovo using the way to take over IBM to develop the overseas market. After the acquisitions, Lenovo become the third computer manufactory. However, the bad news comes is the continue loss in IBM PC. In 2006 Lenovo announce a net loss of $116m compare with $21m profit in previous year. Moreover, although the operation become well in recent year, the overseas market still the loss part of Lenovo.
(Source from: Lenovo 2010 annual report, the segmental report)
(Source from: Lenovo 2009 annual report, the segmental report)
According to the case of Lenovo, it illustrates that the M&A did not success, because it did not achieve the primary aim of the Lenovo. Moreover, it becomes a burden of Lenovo. Therefore, it might found that the M&A sometime destroy the shareholders’ value. Then why do many managers still go for M&A? Most of people argue that it is because of the market power, survival problem, or egoism. From my point view, in the case of Lenovo, it should be market power. Although it was not their primary aim, it now becomes their advantage in China market. After it takes over IBM, it has more competitive computer manufactory in China (17.6% increase in profit in China market in 2010). This also could be found that Lenovo becomes the third computer manufactory just after Dell and HP. Therefore, although M&A sometimes destroy the shareholder value in the first stage, it will brings other benefit to the organization in the future such as the market power.
http://www.bbc.co.uk/news/business-11023642
Lenovo 2009 annual report and 2010 annual report
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