Potential Sources of Value from Mergers and Their Indicators

• Author: Melissa A. Schilling
• DOI: 10.1177/0003603X18770068
• Published date: 01 June 2018
• Date: 01 June 2018

Article

Potential Sources of Value from

Mergers and Their Indicators

Melissa A. Schilling*

Abstract

Firms engage in mergers for many reasons, some of which create value for both the firm’s shareholders

and society, some that create value only for the firm’s shareholders, and some that fail even to do that.

A considerable body of research concludes that most mergers do not create value for anyone, except

perhaps the investment bankers who negotiated the deal. For a merger to create value, it will usually

be necessary that one or both parties is below minimum efficient scale or has valuable underutilized

assets. Furthermore, unless heavy coordination and long-term commitment are required, many

sources of value from mergers can be achieved through collaboration agreements or other contracts,

with less risk to the firms and to economic efficiency. This article outlines the major sources of

potential value in mergers, and indicators that can give us insight into a merger’s true motives and its

likelihood of creating value.

Keywords

mergers, acquisitions, value creation, minimum efficient scale, ecosystems, market power

I. Introduction

A key focus of research in both corporate strategy and antitrust is whether mergers create or destroy

value. In corporate strategy, “value” is typically defined as meaning shareholder value, irrespective

of whether the firm is publicly held (where shareholder value refers to the total shareholder returns of

investing in the firm) or privately held (where value can refer to anything that increases the utility of

the owners). In antitrust, the main concern is whether increased market power will be used to raise

prices and reduce economic efficiency and consumer welfare. In practice there are also other stake-

holders who may reap value gains or losses from a merger: supplier prices (including wages to labor)

may be forced downwards by a buyer who now has more bargaining power, communities may lose

taxes and jobs if the merger results in layoffs, managers may reap higher wages and other benefits from

being at the helm of a larger firm, and more.

*John Herzog Family Professor of Management, New York University’s Stern School of Business, New York, NY, USA

Corresponding Author:

Melissa A. Schilling, John Herzog Family Professor of Management, New York University’s Stern School of Business, Leonard N.

Stern School of Business, Tisch Hall 40 West Fourth Street, 716 New York, NY 10012, USA.

Email: mschilli@stern.nyu.edu

The Antitrust Bulletin

2018, Vol. 63(2) 183-197

ªThe Author(s) 2018

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DOI: 10.1177/0003603X18770068

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