Microsoft & Skype Merger

Microsoft & Skype Merger

Introduction

Mergers and Acquisitions have been a prominent practice in the corporate world. As of the year 2010, the United Kingdom experienced an aggregate 199 mergers and acquisitions, worth £12,414 billion. In this paper, we shall incorporate the purpose and objective of understanding the longitudinal trends of mergers and acquisitions that have otherwise prevailed in the UK.

Comparative Analysis of the 1990's and the 2000's

Schipper and Thompson observed that conglomerate banks usually pursue "acquisitions programs" that include several acquisitions conducted over a number of years. They argued that if an acquisitions program has a beneficial effect on the value of a bank, then a positive stock reaction should arise at the time when the program is announced-i.e., when future positive cash flows are capitalized-rather than when each individual, future acquisition is made public. They also conjectured that if the market actually perceived these acquisitions programs to be wealth increasing, then the regulatory wave that tried to stem corporate mergers during the late 1960s should have had a negative effect on the share prices of companies engaged in aggressive acquisitions programs (Chase, 1997, pp.1753). Their results showed that the stock market did in fact show a positive, and significant, reaction to the announcement of acquisitions programs. They also showed that certain institutional changes during 1967-1970 did have a significantly negative effect on the wealth of conglomerate shareholders. Analyzing this issue further, Asquith found that acquirers engaged in merger programs did in fact receive positive abnormal returns as a result of their transactions. However, they showed that contrarily to Schipper and Thompson's speculation, these gains were not entirely capitalized at the beginning of the acquisitions program (Chen, 1986, pp.383). Positive returns still accrued to acquirers during subsequent phases of the program. They also found empirical support for the negative effect of institutional changes on the merger market during the late 1960s. The results of later studies that utilized data from the 1980s were not compatible with earlier findings (Choe, 1993, pp.3).

Berger and Ofek also reached a similar conclusion when they compared the estimated market value of each segment of diversified banks in their sample to the actual market value. They found that when it comes to diversified banks, the value of the whole is actually less than the aggregated value of individual parts. They actually estimated an average value loss of 13 to 15 percent due to diversification during the period of 2005-2008 (Davidson, 1987, pp. 40).

Economic theory stipulates that in order for a bank to be operating efficiently, its output level should be set at a level that equates its marginal cost to its marginal revenue. In a perfectly competitive industry, the solution to this problem is dictated by the market. Each bank working n the Latin American faces an inelastic demand curve-which happens to be identical to its marginal revenue curve. Therefore, the bank that works in the frame of Latin America is rather a follower of policies framed by the central government, ...