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Does Bad Press Kill Corporate Acquisitions?


October 22, 2013

A CEO is more likely to shelve an acquisition if coverage of the deal is negative in The New York Times, The Wall Street Journal and the Dow Jones News Service — not necessarily because of the deal’s merits, but because of the effect that the bad press has on the CEOs themselves.

According to a paper published recently in The Journal of Financial Economics, even when managers act in their own interests, news coverage can be a force of good in corporate governance.

As Reuters reported on Sept. 30, the paper’s authors, Baixiao Liu and John McConnell, examined 636 acquisition attempts between 1990 and 2010, and found that companies abandoned 19 percent of them. 

When Microsoft tried to acquire Yahoo in 2008, news of the deal brought media bashing, shareholder angst and investor demands for a higher price-per-share. The software giant’s shares fell from almost $32 to about $27 in the month following the announcement, and Microsoft killed the deal a few months later.

Corporate acquisitions that receive widespread media coverage are more likely to fall apart, even when another deal announced at the same time suffers a worse reception on Wall Street, according to the paper. The authors concluded that managers are more comfortable presiding over broken deals than bad deals, because a bad deal stains a manager’s reputation, affecting his or her earnings and future job prospects.  — Greg Beaubien

 



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