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Microeconomics

assets—such as value of employees—are not permitted to seemingly contradictory processes that are evident in the
be recorded as assets, there is generally a residual value of economic environment at the same time.
the excess of cost over the book value acquired after the
allocations to bring net assets of the acquired subsidiary to
BIBLIOGRAPHY
fair value. This residual value is called goodwill. When
Dash, Eric (2006, January 27). Western Union, growing faster
consolidated statements are prepared, both the fair values
than its parent, is to be spun off. The New York Times, Sec-
of the subsidiary’s assets and the goodwill are shown.
tion C, p. 3.
There are three other methods for achieving business
DePamphilis, Donald M. (2003). Mergers, acquisitions, and other
combinations. One method is for one company to acquire
restructuring activities (2nd ed.). Amsterdam: Academic.
the assets of another. The other two methods use statutory
Gaughan, Patrick A. (2002). Mergers, acquisitions—Corporate
mergers and statutory consolidations. Note that although
in common language mergers and acquisitions are used as restructuring (3rd ed.). New York: Wiley.
synonymous terms for consolidations, in accounting these Stahl, Günter K., Mendenhall, Mark E., Pablo, A. L., and Javi-
are technical terms. A statutory merger occurs when dan, M. (2005). Sociocultural integration in mergers and
Company A acquires Company B and dissolves Company acquisitions. In Günter K. Stahl and Mark E. Mendenhall
B. A statutory consolidation occurs when Companies A (Eds.), Mergers and acquisitions: Managing culture and human
and B create Company C and dissolve companies A and resources. Stanford, CA: Stanford Business Books.
B. The accounting for business combinations achieved via Statement of Financial Accounting Standards No. 141. (2001).
asset acquisitions, statutory mergers, and statutory consol- Business combinations. Stamford, CT: Financial Accounting
idations is similar to the accounting for a business combi- Standards Board.
nation via equity acquisition. Statement of Financial Accounting Standards No. 142. (2001).
Goodwill and other intangible assets. Stamford, CT: Finan-
AFTER THE MERGER OR cial Accounting Standards Board.
ACQUISITION Weston, J. Fred, and Weaver, Samuel C. (2001). Mergers and
After the legal functions have satisfactorily concluded, the acquisitions. New York: McGraw-Hill.
new entity has the demanding task of integrating the
components of the new entity so that the goals anticipated
Bernard H. Newman
at the time of consolidation are realized. The evidence on
Mary Ellen Oliverio
the success of mergers meeting their goals is ambiguous.
In a summary of several empirical studies, Günter Stahl
and colleagues noted, “Despite their popularity and
strategic importance, the performance of most M&A has MICROECONOMICS
been disappointing” (Stahl, Mendenhall, Pablo, and Javi-
dan, 2005, p. 1). SEE Macroeconomics/Microeconomics
There are many instances of earlier mergers and
acquisitions being spun off. For example, First Data Cor-
poration, which acquired Western Union in 1995,
announced in January 2006 that it planned to spin off its MISSION STATEMENT
purchase of more than a decade earlier. This decision was SEE Strategic Management
made even though Western Union had been a fast-grow-
ing money-transfer business for the acquirer.
Both Cendant and Tyco, which expanded through
mergers and acquisitions over a decade, announced plans MIXED ECONOMIC
to split their companies. In October 2005 Cendant SYSTEMS
reported it would become four independent companies.
In early January 2006 Tyco International reported plans to SEE Economic Systems
split itself into three publicly traded companies.
Reconsideration of company strategy leads to mergers
and acquisitions as well as to the undoing of earlier merg-
ers and acquisitions. The dynamic characteristic of con- MONETARY EXCHANGE
temporary business is clearly reflected in these two SEE Currency Exchange

514 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION