Reference no: EM133052439

An important part of the dynamics inherent to a change of strategy for a large firm is the fact that it can change the structure of the industry. The obvious changes that you will see quickly are reduced rivalry and reduced buyer power. Consolidating two major firms also reduces supplier power. What might be a bit more hidden is that anti-monopoly agencies, such as the FTC and the European Monopolies and Merger Commission, will often force structural changes to protect consumers that create opportunities for rivals. Like in chess or war, successful merger strategy involves envisioning the responses of rivals and governments in response to your actions. You need to determine which assets you might be forced to give up or sell to rivals, how that will weaken you, and how it will strengthen one or more rivals. An example is AB InBev's proposed acquisition of SAB. Due to its large market share with Budweiser, AB InBev is likely to be required to sell its stake in MillerCoors to Molson. This action would strengthen Molson's market share in the U.S., double the firm's size, and give Molson control over Miller's main brand in the huge U.S. market (see "AB InBev Takeover of SABMiller Would Realign Global Beer Industry" by Tripp Mickle,10/14/15 The Wall Street Journal for the opportunities created for InBev, "Big Beer Merger Also Benefits Molson"T Mickle 10/27/15 The Wall Street Journal for the opportunities created for Molson, which are available via the KU library articles and database search.

Question

If mergers and acquisitions quite often end up providing a competitive disadvantage, why do so many of them take place? Given the poor track record of such outings, is the continuing M&A activity a result of principal-agent problems and managerial hubris? What can be done to overcome principal-agent problems? Are there other reasons for poor performance?