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Strategies & Market Trends : Contrarian Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (548)	10/20/2006 11:53:57 PM
From: pcyhuang	Respond to of 4080

In Acquisitions, Do Sellers Often Know Best? Full Story: online.wsj.com WSJ Online reort: ...The difference between a good deal and a bad one often boils down to little more than hubris, or just plain ego, which can cause a buyer to overpay. "It's not that sellers are smarter than buyers," says Richard Roll, a finance professor at UCLA's Anderson School of Management and author of "The Hubris Hypothesis of Corporate Takeovers." "It's just that buyers are overconfident in their ability to value what they're going to buy." Hubris is a theme among mergers-and-acquisitions experts when they are asked why so many deals go bad. "One theory...is that 'I can do it better where others have failed,' " says George Geis, faculty director of the Anderson School's mergers-and-acquisitions executive program. He adds that when there are bidding wars, the winner often suffers "the winner's curse" of watching its stock get sliced. Perhaps the most glaring recent example was Boston Scientific's $27.2 billion purchase of heart-device maker Guidant after a see-saw bidding battle with Johnson & Johnson. Not surprisingly, Boston Scientific Chief Executive Jim Tobin disagrees with the critics. "The Guidant acquisition was a transforming transaction, and it is premature after six months to draw conclusions about whether any deal -- not just this one -- will fulfill its potential," he says. One thing in his favor is that Boston Scientific paid for the deal with a combination of stock and cash. Research by Anderson School professor-emeritus J. Fred Weston, who created the Anderson School's M&A executive program, shows that a deal's return tends to be negative if stock -- an often inflated but cheap currency -- is used rather than cash. If he were an investor in a company that did an all-stock deal, Mr. Weston says, "I'd get out of there as fast as I could." pcyhuang