In a recent California Management Review article, Iowa State University Associate Professor of Management David King said firms should be aware of competitors' responses to potential.
King’s article follows the recent merging between Marriott and Starwood Hotels and Resorts. During the negotiations process, a Chinese insurance group initiated a bidding competition. According to the article, the merger was finalized but Marriott paid more than it had planned.
Another case of competition affecting the outcome of a merger occurred at the beginning of 2016 after Meredith Corp. walked away from an agreement to merge with Media General. Nexstar Broadcasting ended up buying Media General.
“There are multiple ways that competitors can essentially reduce the deal’s value. Other firms can easily make a competing bid with no interest in actually winning just so the acquiring firm has to pay more money,” King said. “By knowing and paying attention to the competitive dynamics, firms that are making acquisitions can make better choices.”
King, who co-wrote the article with Stockholm Business School assistant professor Svante Schriber, said firms should limit media exposure and keep details confidential until a transaction has been closed.
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