An analysis of value destruction in AT&T's acquisition of NCR

Thomas Lys; Linda Vincent

doi:10.1016/0304-405X(95)00831-X

An analysis of value destruction in AT&T's acquisition of NCR

Thomas Lys^*, Linda Vincent

^*Corresponding author for this work

Accounting Information and Management

Research output: Contribution to journal › Article › peer-review

116 Scopus citations

Abstract

AT&T's $7.5 billion acquisition of NCR decreased the wealth of AT&T shareholders by between $3.9 billion and $6.5 billion and resulted in negative synergies of $1.3 to $3.0 billion. We find that AT&T paid a documented $50 million and possibly as much as $500 million to satisfy pooling accounting, thus boosting EPS by roughly 17% but leaving cash flows unchanged. We conclude that AT&T's decision to acquire NCR in what the market perceived as a value-destroying transaction was related at least in part to the 1984 consent decree with the Department of Justice that led to the break-up of AT&T.

Original language	English (US)
Pages (from-to)	353-378
Number of pages	26
Journal	Journal of Financial Economics
Volume	39
Issue number	2-3
DOIs	https://doi.org/10.1016/0304-405X(95)00831-X
State	Published - 1995

Keywords

Acquisitions
Mergers
Pooling
Purchase

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Strategy and Management

Access to Document

10.1016/0304-405X(95)00831-X

Cite this

@article{af2eda9a236d42078002dc6a33c848d3,

title = "An analysis of value destruction in AT&T's acquisition of NCR",

abstract = "AT&T's $7.5 billion acquisition of NCR decreased the wealth of AT&T shareholders by between $3.9 billion and $6.5 billion and resulted in negative synergies of $1.3 to $3.0 billion. We find that AT&T paid a documented $50 million and possibly as much as $500 million to satisfy pooling accounting, thus boosting EPS by roughly 17% but leaving cash flows unchanged. We conclude that AT&T's decision to acquire NCR in what the market perceived as a value-destroying transaction was related at least in part to the 1984 consent decree with the Department of Justice that led to the break-up of AT&T.",

keywords = "Acquisitions, Mergers, Pooling, Purchase",

author = "Thomas Lys and Linda Vincent",

note = "Funding Information: *Corresponding author. Financial support from Deloitte & Touche, KPMG Peat Marwick, and the Accounting Research Center at the J.L. Kellogg Graduate School of Management, Northwestern University, is gratefully acknowledged. We are indebted to Robert C. Holder, President of AT&T Computer Systems (and previously head of the transition team for the purchase of NCR), for answering numerous questions about this merger in discussions on December 6, 1991. We have benefited from the comments of W. Bruce. Johnson, Steven N. Kaplan, Margaret Neale, Lawrence Revsine, Michael C. Jensen (managing editor), Richard S. Ruback (editor), and William Fruhan and Victor Bernard (referees.)",

year = "1995",

doi = "10.1016/0304-405X(95)00831-X",

language = "English (US)",

volume = "39",

pages = "353--378",

journal = "Journal of Financial Economics",

issn = "0304-405X",

publisher = "Elsevier",

number = "2-3",

}

TY - JOUR

T1 - An analysis of value destruction in AT&T's acquisition of NCR

AU - Lys, Thomas

AU - Vincent, Linda

N1 - Funding Information: *Corresponding author. Financial support from Deloitte & Touche, KPMG Peat Marwick, and the Accounting Research Center at the J.L. Kellogg Graduate School of Management, Northwestern University, is gratefully acknowledged. We are indebted to Robert C. Holder, President of AT&T Computer Systems (and previously head of the transition team for the purchase of NCR), for answering numerous questions about this merger in discussions on December 6, 1991. We have benefited from the comments of W. Bruce. Johnson, Steven N. Kaplan, Margaret Neale, Lawrence Revsine, Michael C. Jensen (managing editor), Richard S. Ruback (editor), and William Fruhan and Victor Bernard (referees.)

PY - 1995

Y1 - 1995

N2 - AT&T's $7.5 billion acquisition of NCR decreased the wealth of AT&T shareholders by between $3.9 billion and $6.5 billion and resulted in negative synergies of $1.3 to $3.0 billion. We find that AT&T paid a documented $50 million and possibly as much as $500 million to satisfy pooling accounting, thus boosting EPS by roughly 17% but leaving cash flows unchanged. We conclude that AT&T's decision to acquire NCR in what the market perceived as a value-destroying transaction was related at least in part to the 1984 consent decree with the Department of Justice that led to the break-up of AT&T.

AB - AT&T's $7.5 billion acquisition of NCR decreased the wealth of AT&T shareholders by between $3.9 billion and $6.5 billion and resulted in negative synergies of $1.3 to $3.0 billion. We find that AT&T paid a documented $50 million and possibly as much as $500 million to satisfy pooling accounting, thus boosting EPS by roughly 17% but leaving cash flows unchanged. We conclude that AT&T's decision to acquire NCR in what the market perceived as a value-destroying transaction was related at least in part to the 1984 consent decree with the Department of Justice that led to the break-up of AT&T.

KW - Acquisitions

KW - Mergers

KW - Pooling

KW - Purchase

UR - http://www.scopus.com/inward/record.url?scp=0001113843&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0001113843&partnerID=8YFLogxK

U2 - 10.1016/0304-405X(95)00831-X

DO - 10.1016/0304-405X(95)00831-X

M3 - Article

AN - SCOPUS:0001113843

SN - 0304-405X

VL - 39

SP - 353

EP - 378

JO - Journal of Financial Economics

JF - Journal of Financial Economics

IS - 2-3

ER -

An analysis of value destruction in AT&T's acquisition of NCR

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this