Dubious Value of International Acquisitions by Emerging Economy Firms: The Case of Indian Firms

This article addresses the question whether companies from emerging economies create shareholder value through foreign acquisitions. The popular business press usually views these foreign acquisitions very positively. The stock markets have often reacted negatively to the acquisitions. The management always claims that the acquisition is in the long term strategic interests of the firm. This article attempts to shed light on these conflicting positions: short term versus long term, and financial versus strategic logic. Using a mix of stock market reaction for a small sample and three in-depth case studies, I conclude that large foreign acquisitions from India have not created shareholder value. The causes of this under-performance are: too little integration, agency problems, and easy capital. Finally, I use a case study to illustrate a successful approach to foreign acquisitions: significant synergies, reasonable price, and deep integration.