A Deal Too Far - the Case of the Killer Acquisition

MGSM Working Paper No. 2006-13

18 Pages Posted: 14 Oct 2006

See all articles by Tyrone M. Carlin

Tyrone M. Carlin

Southern Cross University; The University of Sydney Business School

Nigel Finch

Saki Partners

Guy Ford

Macquarie University - Graduate School of Management

Date Written: October 2006

Abstract

Merger and acquisition transactions are often explained and justified by reference to their potential capacity to generate value - for example through the achievement of operational synergies, critical scale or optimal scope. In contrast, a significant and growing literature questions the worth of acquisition transactions as value generating devices, and the motivations of managers who initiate them. This literature sheds light on the impact of corporate acquisitions by pointing to evidence of the consistent failure of significant numbers of such transactions to generate improved shareholder value, and, concomitant with this, the loss of shareholder value which often results. In some transactions however, the loss of value attributable to acquisitions is of such a magnitude that it threatens the continued existence of the firm initiating the purchase - a phenomenon which has to date attracted comparatively little attention. This paper provides insights into the "killer acquisition" phenomenon by means of a detailed review of one such transaction, the acquisition of Australian bulk wine producer Cranswick Premium Wines by Australian boutique producer Evans & Tate limited. The analysis demonstrates how factors such as failed governance arrangements, lack of due diligence, pursuit of an inappropriately sized target and failure to appreciate the impact of a shifting strategic environment can transform the adverse value consequences of an acquisition transaction from regrettable but manageable to existence threatening within a short timeframe.

Keywords: Killer acquistion

JEL Classification: G34, M40, M41

Suggested Citation

Carlin, Tyrone M. and Finch, Nigel and Ford, Guy, A Deal Too Far - the Case of the Killer Acquisition (October 2006). Available at SSRN: https://ssrn.com/abstract=937252 or http://dx.doi.org/10.2139/ssrn.937252

Tyrone M. Carlin (Contact Author)

Southern Cross University ( email )

Lismore, New South Wales 2480
Australia

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
+ 61 2 9036 7230 (Phone)
+61 2 9351 7471 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/tyronec

Nigel Finch

Saki Partners ( email )

Australia

Guy Ford

Macquarie University - Graduate School of Management ( email )

99 Talavera Road
Sydney, NSW 2113
Australia
+61-2-9850-7813 (Phone)
+61-2-9850-9019 (Fax)

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