Not Available for Download

Workforce Integration and the Disspiation of Value in Mergers: The Case of USAir's Acquisition of Piedmont Aviation

Posted: 25 Sep 1999  

Stacey R. Kole

University of Chicago - Booth School of Business

Kenneth Lehn

University of Pittsburgh - Finance Group

Date Written: March 1997

Abstract

In 1987, the USAir Group acquired Piedmont Aviation for $1.6 billion in a cash tender offer. Prior to the merger, comparably sized USAir and Piedmont were among the most profitable carriers in the industry. Almost immediately after the integration of the two airlines, USAir became the industry's least profitable carrier and came close to bankruptcy. This paper concludes that the major source of the value destruction in the merger was USAir's workforce integration strategy. The decision to buy labor peace by extending USAir's more generous pay scales and work rules to Piedmont employees accounts for roughly 80% of the $2.5 billion post-merger decline in the USAir's equity value. More generally, we conjecture that the integration of workforces is especially difficult in airline mergers and find evidence consistent with the conjecture. We interpret the USAir-Piedmont case as evidence consistent with Williamson's (1985) argument that the boundaries of the firm are limited in part by considerations of internal equity.

JEL Classification: G3, J5, L2

Suggested Citation

Kole, Stacey R. and Lehn, Kenneth, Workforce Integration and the Disspiation of Value in Mergers: The Case of USAir's Acquisition of Piedmont Aviation (March 1997). Available at SSRN: https://ssrn.com/abstract=5167

Stacey Reva Kole (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Kenneth Lehn

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-2034 (Phone)

Paper statistics

Abstract Views
1,979