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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (1340)	2/24/1999 3:34:00 PM
From: Bob Rudd	Respond to of 1722

For an interesting take on mergers, read Sirower's "The Synergy Trap" His research shows that 2/3's of mergers fail to justify the takeover premium and thus implement a rapid wealth transfer from shareholders of acquirer to shareholders of acquired with little net gain. Buffet's take on mergers: Many managers were apparently over-exposed in impressionable childhood years to the story in which the imprisoned, handsome prince is released from the toad's body by a kiss from the beautiful princess. Consequently they are certain that the managerial kiss will do wonders for the profitability of the target company. Such optimism is essential. Absent that rosy view, why else should the shareholders of company A want to own an interest in B at a takeover cost that is two times the market price they'd pay if they made direct purchases on their own? In other words investors can always buy toads at the going price for toads. If investors instead bankroll princesses who wish to pay double for the right to kiss the toad, those kisses better pack some real dynamite. We've observed many kisses, but very few miracles. Nevertheless, many managerial princesses remain serenely confident about the future potency of their kisses, even after their corporate backyards are knee-deep in unresponsive toads. Warren Buffett, 1981 Berkshire Hathaway Annual Report