Chapter 2
Growth through Mergers and Acquisitions
Companies are under continual pressure to grow. Corporate growth allows companies to pay increased dividends and to have shareholders realize increases in their equity investments. Management at companies would have a difficult time telling shareholders that their long-term goal is to stay at the same level and not grow. If they did, shareholders and directors would cry for a replacement management team that could achieve growth. So it is widely accepted that growth is required as part of management's strategy. However, this assumption, although widely accepted, should be critically evaluated and reexamined.
The pursuit of growth has led many companies to go astray and adopt strategies that fail to achieve such goals and may even cause the companies to incur significant losses. Pressure from securities markets forces management to pursue the growth that investors demand. One of the fastest ways that growth can be achieved is through mergers and acquisitions (M&A). Unfortunately, M&A can be risky. All too often it results in losses. The key is to determine which deals will lead to bona fide growth and which ones should be avoided. The long and inconsistent track record of M&A successes and failures underscores the fact that a priori identification of which proposed deals will be successful is a great challenge.
Is Growth or Increased Return the More Appropriate Goal? The Case of Hewlett-Packard
It is virtually taken without question ...
