In theory there are many motives behind M&A, and at the bottom M&A should generate shareholder wealth. However in the real corporate world most examples of M&A are failures and shareholder value distractions, for example the merger of Time Warner and AOL.
However, when looking at M&A happened between First Choice PLC and the Germany company, TUI AG which merged during September 2007 it confirms that Merger It self will not create shareholder wealth or either will not destroy. In my opinion it completely depends on how best the decision match the business, market and capabilities. When looking at the above example, the merge of two companies formed the market leading TUI Travel on 7th September 2007. TUI AG have a 50% stake in the new firm , with First Choice controlling the remaining 49%. This merge was expected to achieve synergies of £100 million. After this announcement, TUI's shares has raised by 10% , while First Choice's
shares also has raised by 8% in London during 2007.
The merger has been announced after months later its main rival Thomas Cook group merged with My Travel. Hence TUI would have wanted to gain the market leading position putting Thomas Cook in to second. However TUI began to have a higher share price only after 2008 second half.
Share price movement of Tui Travel and Thomas Cook since Sep 2007- Sep 2010
Besides, TUI profits have not been too good since the merge till 2011. It has taken four years for TUI travel to make a good return for shareholders. In my opinion M&A cannot blankly accept for shareholder wealth maximization at the bottom. It could be used as a business survival and to maintain competitive advantage, which in-turn will increase shareholder wealth. However, the time horizon is important. As it for TUI, it has taken 4 years for a positive earning.
Sources :
Financial times, (2007) Available at: http://www.ft.com/cms/s/0/815b3cce-d583-11db-a5c6-000b5df10621.html#axzz1oraGuXH7
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