Back to School 2003: The M&A game

The textbook view of mergers is that most fail for one of two reasons: either true synergies don’t exist, or management overpays, such that existing shareholders are always better off if the merger doesn’t occur. Classic theory also says that investors are better off diversifying on their own, rather than relying on managements to diversify for them.

The history of Elan Corp. plc is the poster child for this argument. ELN (Dublin, Ireland) spent $4.35 billion on eight acquisitions from March 1996 through September 2000. Yet its market cap today is about $1.5 billion...