Vanitha Swaminathan, Feisal Murshed, and John Hulland
Executive Summary
The findings from this research suggest that strategic emphasis alignment—the extent to which the resource configurations of target and acquirer firms are similar or complementary to each other—is a key factor that facilitates value creation. The research reveals that both similarity and complementarity (or dissimilarity) of acquirer and target firms can have a positive impact on the value created by a merger but that this impact depends on whether the merger motive is one of consolidation (e.g., Exxon–Mobil merger, AT&T–Cingular merger) or diversification into related industries (FedEx–Kinko’s merger).
The authors use data from 206 mergers in three different industries (i.e., electronics, chemicals, and foods). With an event study methodology, they use stock market reactions to merger announcements to determine the impact of a merger on firm value. Furthermore, they use secondary data on marketing and research-and-development (R&D) resource configurations of target and acquirer firms to determine the extent to which strategic emphasis alignment is present within a merger. The results suggest that when merging firms have low strategic emphasis alignment (i.e., the target and acquirer are dissimilar), value is enhanced when the merger motive is one of diversification. In contrast, when merging firms have a low degree of strategic emphasis alignment, value is lower when the merger motive is one of consolidation.
In summary, this research contributes to the extant literature in three ways. First, this research introduces strategic emphasis alignment as a critical construct influencing postmerger value creation. This captures the fit in strategic orientations across merging entities. Second, by creating a contingency framework of the conditions under which strategic emphasis alignment creates greater value, the authors show that both resource similarity and resource complementarity create value, but under varying merger motives. In doing so, this research suggests a resolution to the debate regarding the role of similarity versus complementarity in merger value creation. Third, the findings demonstrate how marketing resources, specifically advertising (relative to R&D), influence merger and acquisition value creation across industries.
This research suggests that managers can use merger announcements as tools for building investor confidence by signaling marketing benefits, such as increased scale of product, distribution, and market resource strengths. Furthermore, the findings demonstrate that merger motives described in merger announcements have an important bearing on the relative importance of similarity of resource configurations.
Managers are increasingly accountable to shareholders for demonstrating how expenditures on key activities (e.g., advertising, brand building) contribute to shareholder value. This research shows that certain combinations of expenditures on marketing and R&D can influence firm value after a merger announcement. Furthermore, by examining investor reactions to various types of merger motives embedded in merger announcements (e.g., consolidation of market power, diversification aimed at product line filling), this research highlights various ways that managers can externally position a merger to signal value to investors.
Biography
Vanitha Swaminathan is Assistant Professor of Marketing in the Katz Graduate School of Business at the University of Pittsburgh. Her research interests are in the areas of branding strategy, mergers/strategic alliances, and the impact of information availability on consumer preference and choice. She has published in a variety of journals, including Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, Strategic Management Journal, Journal of Advertising, Journal of Business Research, and Journal of Consumer Psychology.
Feisal Murshed is Assistant Professor in Marketing and e-Business in the College of Business and Economics at Towson University. He has received his PhD in Marketing from the Katz Graduate School of Business at the University of Pittsburgh. His research interests are in the general area of marketing strategy and services marketing. He has previously published in Marketing Science.
John Hulland is Associate Professor of Marketing in the Katz Graduate School of Business at the University of Pittsburgh. His research is focused on three broad areas of inquiry: (1) understanding and managing the relationship between marketing resources and firm performance, (2) improving the effectiveness of marketing and sales group interactions within firms, and (3) applying causal modeling techniques in strategic contexts. He has published in Journal of Marketing, Marketing Science, Strategic Management Journal, Organization Science, Information Systems Research, MIS Quarterly, Journal of Product Innovation Management, and International Journal of Research in Marketing, among others.
Journal of Marketing Research, Vol. XLV, No. 1, February 2008
View Table of Contents.