The Effect of Mergers and Acquisition on the Profitability of the Industry

by

ACKNOWLEDGEMENT

I would like to express my thanks to my advisor, for his suggestions, comments, patience and understanding. Very special thanks to my parents, my father, my mother, my brother and my sister who were continuously supporting me throughout my life and leaving me free in all my decisions. I would also like to thank my colleagues for his technical support whenever I needed. I would like to thank to Department, all the university managers, teachers and students with whom I have worked.

I certify that the work presented in the dissertation is my own unless referenced

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DECLARATION

I declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. I further declare that this work has not previously been presented in whole or part, for any other award, or published in whole or in part elsewhere, including this university. Furthermore, it represents my own opinions and not necessarily those of the University.

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ABSTRACT

The paper explores relationship of companies' income and asset from Horizontal merger in Europe in Telecommunication Company over the short period of time. The relation of growth and profitability has importance in both empherical and theoretical literature. Considering the neo-classical model of behavior of the firm states that growth is likely to happen in an unplanned or in conjunction to profit maximization. This paper use large unstructured data of European quoted companies in telecommunication over the period of 1992-1998 the main focus on this paper would be to find out the impact of M&A behavior on company's performance using the Variable for e.g. Return on asset, total assets and leverage as these specific factor found to be important in explaining the financial performance of the acquirer before and after the takeover has taken place. The result indicates that there is positive effect on the company's accounting performance and growth arising from merger and acquisition.

TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

ABSTRACTiv

CHAPTER # 1: INTRODUCTION1

Background of the Study1

Problem Statement2

Purpose of the Study3

Rationale of the Study3

Significance of the Study4

Structure of the Dissertation5

CHAPTER # 2: LITERATURE REVIEW6

Why do firms merge?6

Synergy7

Shareholders wealth8

Arbitrage9

Concentration effects of Merger11

Financial Performance11

Theories of Mergers and Acquisitions12

Mergers Defined12

Motivations for Mergers and Acquisitions13

Efficiency14

Market power15

Diversification16

Acquisition Strategies17

Influence of Acquisition on Work Performance17

CHAPTER # 3: METHODOLOGY20

Research Design20

Data Set20

Sample21

Variables22

Model22

Validity and Reliability23

CHAPTER # 4: DATA ANALYSIS24

Regression Analysis ROA post-merger24

Regression Analysis Financial performance, Total Assets and Leverage25

Correlation Analysis28

Results29

CHAPTER # 5: CONCLUSION AND RECOMMENDATION32

Recommendations for Future Study32

Pre-and Post-Comparative Analysis Approach34

Implications34

Practical Recommendations35

REFERENCES36

CHAPTER # 1: INTRODUCTION

Background of the Study

Begin Globalization, deregulation, and technological advancement are some of the contributing factors that influence how organizations conduct business operations in the 20th century. Organizations are pressured to increase efficiency because of competition in the marketplace. As result, restructuring the internal and external organizational controls in both private and public sectors is necessary (Rowley et al., 2005 499). Since the early 1980s, many forms of organizational transformation have resulted from acquisition (Guan and Sun 2004 421). These forms of transformation represent a ...