Analysis of a Merger from a Governance Perspective: The Case of Abitibi-Consolidated and Donohue
42 Pages Posted: 27 Jul 2008
Date Written: July 25, 2008
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: Suggested Citation