Читать книгу Applied Mergers and Acquisitions - Robert F. Bruner - Страница 138

How are we to make sense of these disparate and contradictory findings? Villa-longa (2003b) argues that the debate revolves around three categories of tests, of differing strength. Like the old research on capital market efficiency, there are three forms of assertions about whether diversification destroys value:

1 Weak form. Does the diversified firm trade at a discount relative to stand-alone businesses in the same industry? The evidence is mixed here, and the more recent studies favor “no” as an answer.

2 Semistrong form. Does the diversified firm trade at a discount relative to its “bust-up” value? A positive answer here asserts that the diversified firm destroys value by staying diversified, and is supported by the numerous studies finding that value is created when firms divest, spin off, or carve out their businesses. Villalonga (2003b) writes, “When firms are outperformed by their competitors, any change in their current strategy is welcomed by the stock market. There is as much evidence that firms are destroying value by staying diversified as there is evidence that single-segment firms are destroying value by not diversifying.” (Page 4)

3 Strong form. Does the diversified firm trade at a discount relative to what it would be worth if it had not diversified? A positive answer here asserts that the act of diversification destroys value. Unfortunately, this “had not diversified” value is unobservable and efforts to find an implied value are challenged by a strong selection bias: Firms that diversify are found to be significantly different from those that don’t.

The conclusion from this survey is that one cannot confidently condemn diversification or endorse focus. Still, the research holds some useful implications for the practitioner.

DIVERSIFY ONLY WITH A SOUND ECONOMIC RATIONALE Even if there is no diversification discount, the distribution of outcomes is large, meaning that a nontrivial portion of diversifiers destroy value. The solution is to use an economics perspective to guide your strategic planning and transaction design. The research shows that diversification may be successful under certain circumstances.

 Where there is high relatedness in terms of industry focus between the target and buyer. Richard Rumelt (1974, 1982) found that returns on equity were higher for strategies of related diversification than for strategies of unrelated diversification or for single-business focus.

 Where the internal markets for talent and capital are truly disciplined, and managers are properly rewarded. Studies by Amihud and Lev (1981) and Denis et al. (1997) suggest that diversification imposes a kind of agency cost: Manager-controlled firms do more diversifying deals than shareholder-controlled firms.¹⁵ Anslinger and Copeland (1996) studied 21 firms with little or no internal relatedness, and found that they produced returns of 18 to 35 percent per year by making nonsynergistic acquisitions. They explained the superior performance of these firms as due to seven principles: “Insist on innovating operating strategies. Don’t do the deal if you can’t find the leader. Offer big incentives to top-level executives. Link compensation to changes in cash flow. Push the pace of change. Foster dynamic relationships among owners, managers, and the board. Hire the best acquirers.” (Page 127)

 Where the public capital market is less effective. Hubbard and Palia (1999) found that returns from conglomeration were positive and significant during the 1960s, a time when the authors believed the U.S. capital markets were less efficient in allocating capital than they are today. Khanna and Palepu (1997, 2000) made a similar argument in studying conglomerates in India. The authors concluded that these industrial groups enjoyed greater efficiency because of their ability to allocate resources better than the capital market there. And Fauver, Houston, and Naranjo (2002) studied 8,000 companies in 35 countries, concluding, “Internal capital markets generated through corporate diversification are more valuable (or less costly) in countries where there is less shareholder protection and where firms find it more difficult to raise external capital.” (Page 1) The distinction between developed and developing countries is therefore interesting as a possible focus for diversification strategies. The research of Lins and Servaes (1999, 2002) lends such a comparison. They found a diversification discount of zero percent in Germany, 10 percent in Japan, and 15 percent in the United Kingdom. But in seven emerging markets, they found a diversification discount of about 7 percent, and concluded that the discount was concentrated among firms that are members of industrial groups. This contradicts the idea that diversification pays where public markets are less efficient, and suggests that differences in corporate governance and/or rule of law across countries may have a material impact on the benefits of a diversification strategy.

 Where product markets are experiencing an episode of deregulation or other turbulence. Deregulation of markets invites entry by firms in related industries. The merger of Citicorp and Travelers insurance (see Carow 2002) reflected the deregulation of commercial banking in the United States permitting “bancassurance,” the convergence of commercial banking and insurance industries. Also, during periods of product market uncertainty, a disciplined and patient investor may be better at allocating capital into that industry than would a more volatile public capital market.

 Where one or both firms have significant information-based assets. There is evidence that diversified firms transfer knowledge and intellectual capital more efficiently than do public markets. Thus, Morck and Yeung (1997) find that diversification pays when the parent and target are in information-intensive industries.

VALUE CREATION DISCIPLINE IS VITAL; AVOID MOMENTUM LOGIC Growth can become a narcotic, such that growing well matters less than growing by any means. Chapter 17 describes the economics of momentum strategies in detail. If strong discipline is maintained, it is possible to grow in a way that creates value for shareholders. Indeed, one of the best-performing stocks of the past 40 years has been Berkshire Hathaway, nominally an insurance company but actually a quirky conglomerate run by Warren Buffett, with interests in furniture retailing, razor blades, airlines, paper, broadcasting, soft drinks, and publishing. Buffett’s success seems to say that instead of debating diversification and focus, one should simply concentrate on sound investing and value-oriented management. Study Warren Buffett not as a stock investor but as a CEO of a conglomerate. While we know a lot about his philosophy of value-oriented investing, we know much less about how he finds and manages his diversifying acquisitions.

PERHAPS DIVERSIFICATION AND FOCUS ARE PROXIES FOR SOMETHING ELSE If the choice of strategy (diversification or focus) does not help us discriminate well across outcomes, then perhaps we should look elsewhere for explanations of where strategy has an impact. One could look more deeply to the drivers of the returns in these transactions, such as governance systems, financial discipline, transparency of results, managerial talent, incentive compensation, and so on. Research on these is discussed elsewhere in this book and finds that the drivers are significant in explaining outcomes.

PRESUPPOSE RATIONALITY, BUT GUARD AGAINST STUPIDITY Pay attention as future research unfolds. Growth by diversification is one of the strategic staples for corporations, easily abused and misused. If, as Nobel laureate George Stigler once argued, rational people don’t do stupid things repeatedly, firms must be diversifying because there is something in it. One wants to understand the economic consequences of diversification. The evolution from one view to another evokes similar shifts in other areas of M&A, such as poison pills and the perennial question of whether M&A destroys value for bidders.