An Intro to Twitter’s Takeover – how do M&A deals create value?

You may have heard about Elon Musk’s proposal to acquire Twitter, putting $44 billion forward to secure the deal.

Elon Musk’s dramatic hostile takeover attempt of Twitter has shone a light on the world of Mergers & Acquisitions (M&A).

A merger is when two companies agree to join forces. An acquisition is when one company buys another.

M&A transactions are exciting and dynamic, but there’s also a lot at stake for both companies involved. 

We got the low down from industry experts at Alliance Manchester Business School – find out more about acquisitions and takeovers in this article. 

You’ll also learn of some fantastic opportunities brought to you by this institution in partnership with MYP – interested? Read on!

Twitter Takeovers: How does the M&A deal create value?

When the world’s richest man makes a move to buy one of the biggest social media platforms on the planet, it is going to make headlines.

Elon Musk’s dramatic hostile takeover attempt of Twitter has shone a light on the world of Mergers & Acquisitions (M&A).

But what are the drivers of these deals and who ultimately benefit?

A guiding principle of any M&A deal is value maximisation; does the deal benefit the shareholders of the acquiring company and those of the target company?

But there are also benefits and costs for wider society, including employees, consumers, the local community, the environment, the tax authorities and so on.

So, do mergers and acquisitions create or destroy value?

There are compelling reasons why both these things could happen.

What happens In the short term?

In the short term, when a business is targeted for takeover, the share price generally goes up by 15 to 20 per cent, and in some cases by significantly more, which definitely creates value for the shareholders of the target company.

But what about the acquirer?

Here the evidence is not as clear cut.

Past evidence shows a very small negative or positive reaction affecting the stock of the acquirers. That’s not particularly damaging, but it’s not particularly beneficial either.

And what about society?

There is much concern around so called ‘killer acquisitions’, where a company that dominates its sector quickly acquires any new entrants in order to eliminate the competition.

While this can benefit the shareholders of the acquirer and the acquired companies, it reduces competition, which is bad for consumers and can deter innovation.

What could happen In the long term?

Looking at the longer term, takeovers can generate efficiencies that can benefit both society and shareholders because they create more efficient companies that can sell their products at a lower price.

On the minus side, a takeover can also work to create a bigger company that has more market power and can charge higher prices to consumers.

That creates value for shareholders, but is less positive for society.

Managers of acquiring companies can also pursue takeovers because it gives them leverage to demand higher compensation for leading a larger business.

In this case, the acquisition does not create value for the shareholders – just for the manager.

Exploring M&A in extensive detail: Financial Management at Alliance Manchester Business School

So, we can see that this is a very complex issue, with a diverse range of possible outcomes.

This is exactly the kind of topic Alliance Manchester Business School (AMBS) focus on in their MSc in Financial Management, and their approach centres not on complex theoretical constructs, but rather on practical applications.

That could mean using data on current events, like the Twitter takeover, or even analysing acquisition opportunities in students’ own companies – developing real life solutions to real life challenges.

If you’re interested in hearing about the kind of subjects covered in the MSc programme in Financial Management at Alliance Manchester Business School, get in touch directly with them!

Special thanks to Amedeo De Cesari, Senior Lecturer in Finance in the Finance and Accounting Group of the Alliance Manchester Business School and director of the MSc Financial Management Programme for the information!

Here at MYP, we’re advocates of providing educational and business opportunities for young people in Manchester. 

In recent weeks one of our MYP community has been awarded the MYP £23,000 MBA scholarship and we will be sharing more information on that in due course.  Please also watch out next week for our announcement of a MYP scholarships for the MSc in Financial Management.