This week's lecture was about the International Stock Markets and stock market efficiency.
Earlier last month a "transatlantic tie up" between the London Stock Exchange (LSE) and the Toronto Stock Exchange (TSX) was in the late stages of completion. This will make a new group valued at £5.5bn. I am unsure if this will msw because of current market conditions. I do know that energy is the commodity to be purchasing from reading business pages and that this merger would get it's strength "from it's position as one of the largest international platforms for mining company listings". 30% of LSE's listings come from energy commodities where TSX has "several big gold companies as well as thousands of junior miners". Sharing these resources must msw because it increases the stock exposure.
Market efficiency
The market cannot be truly efficient or arbitrage would not be possible. Arbitrage is more return for the same amount of risk.
Sunday 27 February 2011
Saturday 19 February 2011
Time Warner and AOL epic fail.
This is a tale of how not to maximise shareholder wealth.
January 10th 2000 Shareprice $72.62.
AOL and Time Warner merge. AOL being valued at $200bn and Time Warner valued at $160bn.
December 5th 2001 Shareprice $34.75.
Gerald Levin CEO quits. One of the original architects of the merger.
April 24th 2002 Shareprice $19.30.
Accounts published showing the mergers failings.
July 18th 2002 Shareprice $12.45.
Robert Pittman, Chief Operating Officer quits. He was responsible for integrating the two companies into one.
July 25th 2002 Shareprice $9.64.
SEC investigate Time Warner AOL's accounting practices after allegations of 'unconventional transactions' leading to inflated revenues.
January 13th 2003 Shareprice $15.03.
Steve Case CEO quits. Another original architect of the merger gone.
It is argued by Forbes.com that in 70% of mergers and acquisitions shareholders would be better off if they didn't happen.
So if the main purpose of a company is to maximise shareholder wealth what went wrong with the Time Warner AOL merger?
At the outset of the merger Time Warner and AOL no doubt thought that this merger would maximise shareholder wealth and create value for the companies in the short term. Alfred Rappaport would argue in his Harvard Business Review "Ten Ways to Create Shareholder Value" that chasing short term investment is not always the best option even for a quick fix of cash. In his opinion investing in the option that will increase shareholder wealth is the best option for all concerned. From looking at the results of the AOL and Time Warner merger it has to be argued that a short term gain was the principle motive for the investment, if only they'd done thorough market research to know that the dot.com bubble had burst and AOL was losing value rapidly.
The resignation of Robert Pittman is telling as he was the Chief Operations Officer responsible for the merger of the staff on all levels. A successful merger relies on a Merger or Acquisition strategy. This was a huge failure for the venture, the companies had no strategy in place to become one.
This is a good example of when mergers and acquisitions go badly and a bad example of how to maximise shareholder wealth.
January 10th 2000 Shareprice $72.62.
AOL and Time Warner merge. AOL being valued at $200bn and Time Warner valued at $160bn.
December 5th 2001 Shareprice $34.75.
Gerald Levin CEO quits. One of the original architects of the merger.
April 24th 2002 Shareprice $19.30.
Accounts published showing the mergers failings.
July 18th 2002 Shareprice $12.45.
Robert Pittman, Chief Operating Officer quits. He was responsible for integrating the two companies into one.
July 25th 2002 Shareprice $9.64.
SEC investigate Time Warner AOL's accounting practices after allegations of 'unconventional transactions' leading to inflated revenues.
January 13th 2003 Shareprice $15.03.
Steve Case CEO quits. Another original architect of the merger gone.
It is argued by Forbes.com that in 70% of mergers and acquisitions shareholders would be better off if they didn't happen.
So if the main purpose of a company is to maximise shareholder wealth what went wrong with the Time Warner AOL merger?
At the outset of the merger Time Warner and AOL no doubt thought that this merger would maximise shareholder wealth and create value for the companies in the short term. Alfred Rappaport would argue in his Harvard Business Review "Ten Ways to Create Shareholder Value" that chasing short term investment is not always the best option even for a quick fix of cash. In his opinion investing in the option that will increase shareholder wealth is the best option for all concerned. From looking at the results of the AOL and Time Warner merger it has to be argued that a short term gain was the principle motive for the investment, if only they'd done thorough market research to know that the dot.com bubble had burst and AOL was losing value rapidly.
The resignation of Robert Pittman is telling as he was the Chief Operations Officer responsible for the merger of the staff on all levels. A successful merger relies on a Merger or Acquisition strategy. This was a huge failure for the venture, the companies had no strategy in place to become one.
This is a good example of when mergers and acquisitions go badly and a bad example of how to maximise shareholder wealth.
Saturday 12 February 2011
Introduction to International Finance and Financial Management
This is my first blog about the first lecture; Introduction to the aims and objectives of International Financial Management.
We were told the three main answers to the questions raised in this subject. They are;
We discussed in whose interest companies are run? My initial thoughts that a company exists for the main purpose of profit for those who own the company. I am a bit naive in that I didn't think the 'owners' could be shareholders of a company. I see them as those 'along for the ride' and shouldn't be overly considered when business decisions are to be taken. Why should they be listened to? They don't run the company and most probably wouldn't have the skills to.
I then remembered about a lawsuit Dodge vs Ford Motor Company. Dodge Brothers sued Ford Motor Company in 1919. The Dodge Brothers argued that Henry Ford owed a duty to the shareholders of Ford Motor Company to operate for the profit of shareholders, not the owners.
This has made me reconsider the importance of shareholders.
We were told the three main answers to the questions raised in this subject. They are;
- To maximise shareholder wealth,
- Risk,
- Other.
We discussed in whose interest companies are run? My initial thoughts that a company exists for the main purpose of profit for those who own the company. I am a bit naive in that I didn't think the 'owners' could be shareholders of a company. I see them as those 'along for the ride' and shouldn't be overly considered when business decisions are to be taken. Why should they be listened to? They don't run the company and most probably wouldn't have the skills to.
I then remembered about a lawsuit Dodge vs Ford Motor Company. Dodge Brothers sued Ford Motor Company in 1919. The Dodge Brothers argued that Henry Ford owed a duty to the shareholders of Ford Motor Company to operate for the profit of shareholders, not the owners.
This has made me reconsider the importance of shareholders.
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