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If managers are rational, mergers should always lead to an increase in shareholder value. Discuss this statement in view of the relevant analysis of mergers and acquisitions Essay Example

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If managers are rational, mergers should always lead to an increase in shareholder value. Discuss this statement in view of the relevant analysis of mergers and acquisitions

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All these advantages of mergers and acquisition must always be reflected in the growth of organizations shares, hence increasing the share value of an organization (Van Horne and Wachowicz, 2009). However, this is not always the case on most of the mergers that occur. This is because an acquisition and a merger is always a very complex procedure, and on most occasions, it is difficult for the managers to accurately evaluate the transactions, the benefits, the costs, and the legal and tax issues that emanate from the mergers (DePamphilis, 2012).Custodio (2013) denotes that one of the factors that normally discourage mergers and acquisitions is the high transaction costs associated with this process. It is important to understand that before commencing a merger or an acquisition, there are a variety of costs that the business under consideration must look into. This includes legal costs, taxes, the various debts of the organization under consideration, the operational expenses of the new unit to be formed (DePamphilis, 2012). It is important to understand that these costs are always high, and most organizations might fail to meet these costs. Legal costs might arise when one company, protests against the merger, and an example is in 2008 when Well Fargo wanted to acquire Wachovia. Citi Group was against this initiative, and it planned to initiate a legal challenge against this acquisition.Gaughan (2011) denotes that 60-80% of mergers are not always successful. Due to the failure of these mergers, the share values of these companies usually depreciate. It is important to understand that on most occasions, the managers of a business organization are not responsible for the failure of these mergers. Goldberg (2011) denotes that the decision to acquire or merge with another firm is capital intensive, and managers do not have the capability of preventing a merger or an acquisition, once shareholders decide to do so. However, Gaughan (2011) denotes that managers can have a decision on whether their company should merge or acquire another company, if their interests are aligned with the interests of the shareholders. It is important to denote that the interest of the manager can be aligned with that of the shareholders if the manager has some substantial shares within the organization. This would also make the manager be willing to take risks, for purposes of ensuring that the

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