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Analysis of a Merger from a Governance Perspective: The Case of Abitibi-Consolidated and Donohue

42 Pages Posted: 27 Jul 2008  

Paul André

HEC Lausanne

Michel Magnan

Concordia University - Department of Accountancy

Sylvie St-Onge

HEC Montreal

Date Written: July 25, 2008

Abstract

Adopting a governance perspective, this clinical study analyses the merger between closely-held Donohue Inc. and widely-held Abitibi-Consolidated Inc. Some key findings emerge. First, the absence of a controlling shareholder and weak board governance at Abitibi might explain both (a) its executives' interests in the transaction and (b) its CEO's compensation increase despite underperformance. Second, an inter-generation shift of control at Quebecor (Donohue's parent company) led to a strategic reorientation that (a) transformed Donohue into a target and (b) insured that Donohue's executives had incentives to pursue a deal. Finally, Donohue's non-controlling shareholders benefited from the transaction while Abitibi shareholders experienced wealth reduction. The merger's aftermath provides some counter evidence regarding blockholders' power in widely-held firms.

Keywords: Merger, Managerial compensation; Governance, Dual class shares, Pyramid structure, Canada

JEL Classification: G14, G32, G34

Suggested Citation

André, Paul and Magnan, Michel and St-Onge, Sylvie, Analysis of a Merger from a Governance Perspective: The Case of Abitibi-Consolidated and Donohue (July 25, 2008). Available at SSRN: https://ssrn.com/abstract=1176602 or http://dx.doi.org/10.2139/ssrn.1176602

Paul Andre (Contact Author)

HEC Lausanne ( email )

UNIL-Dorigny
Anthropole
Lausanne, 1015
Switzerland

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Sylvie St-Onge

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

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