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Motive of Merger

The document summarizes seven theories of mergers and acquisitions (M&A) as explained by Friedrich Trautwein: monopoly theory, efficiency theory, raider theory, valuation theory, empire building theory, process theory, and disturbance theory. It provides details on the first five theories, noting that monopoly theory involves consolidating market position, efficiency theory aims to achieve synergies, raider theory transfers wealth to acquirers, and valuation theory involves acquirers paying a premium for undervalued targets. Empire building theory is driven by managers seeking to expand their empires rather than create shareholder wealth.

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Kunal Shahi Suryavanshi
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3K views8 pages

Motive of Merger

The document summarizes seven theories of mergers and acquisitions (M&A) as explained by Friedrich Trautwein: monopoly theory, efficiency theory, raider theory, valuation theory, empire building theory, process theory, and disturbance theory. It provides details on the first five theories, noting that monopoly theory involves consolidating market position, efficiency theory aims to achieve synergies, raider theory transfers wealth to acquirers, and valuation theory involves acquirers paying a premium for undervalued targets. Empire building theory is driven by managers seeking to expand their empires rather than create shareholder wealth.

Uploaded by

Kunal Shahi Suryavanshi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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„ Friedrich Trautwein explain seven theories


of M&A also known as Motive of M&A .
These are:
„ 1. Monopoly Theory
„ 2. Efficiency Theory
„ 3. Raider Theory
„ 4. Valuation Theory
„ 5. Empire Building Theory
„ 6. Process Theory
„ 7. Disturbance Theory
c  c
„ Traut has classified the first four theories
or motives as beneficial to the
shareholders of the acquirer company.
„ The fifth motive has been classified as
beneficial to the managers of the acquirer.
„ The sixth he said as a outcome of process
and seventh as macroeconomic
phenomenon.
NOTE: Only first five motive has practical
relevance and explained in detailed.
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„À 
 
„ This explain that Merger being planned
and executed to achieve market share and
market power.
„ Monopoly motive of merger works in three
ways:
„ A) Market Leaders trying to consolidate
their position further
„ B) Profitable and cash-rich companies
trying to gain market leadership
„ C) Market entry strategy
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„ 2. Efficiency Theory: Efficiency theory as
being planned and execute to achieve
synergies thereby adding to enterprise
valuation. There are five main types of
synergies:
„ i) Manufacturing Synergy
„ ii) Operations Synergy
„ iii) Marketing Synergy
„ iv) Financial Synergy
„ v) Tax Synergy
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„ 3. Raider Theory:
Raider theory explain the merger activity
in the specific context of Public Equity
funds, where the acquirer acquire
controlling stake in cash needy companies
at much lower valuation than potential or
present valuation.
It is just to transfer the wealth from
existing shareholder to themselves
without any strategic intent of running
these companies themselves.
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„ 4. Valuation Theory:
This theory explain the merger as being
planned and executed by the acquirer who
has better information about the valuation
of the target company than the stock
market as a whole and who estimate the
real intrinsic value to be much higher than
the present market capitalization of the
company. Therefore acquirer ready to pay
premium over the present market price.
c  c
„ 5.Empire Building Theory:
Empire Building Theory tries to
explain Merger being planned and
executed by the managers for
expanding their own empire rather
than creating wealth for
shareholders.
This theory based on the concept of
corporate that is ³Size matters´
3


Mergers, Acquisitions and


Corporate Restructring
Godbole G Prasad-
Prasad-Vikas
Publishing House

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