W h y s o m e c o m p a n I e s m a k e t h e

,
S UM MARY OF ACQUISITION ANALYSIS
GOOD-TO-GREAT COMPANIES
V ER S US
COMPANIES*
Overall
Total Number
Total Number
Success
of Acquisitions
of
Rate of
during Era
during Era
Acquisitions
Company
Studied
Studied
Strategy
Abbott
2 1 5
+
2 25 7 NA Circuit City
1 Silo
4 0 Fannie Mae
0 0 Great Western
2 1
3 Gillette
39 20
Warner-Lambert
32 14 Scott Paper
18 24
-2 Kroger
11 9
Nucor
2 3 Bethlehem Steel
10 23
-3 Philip Morris
5 5
19
+
1 R. J. Reynolds
3 6
29
-3
Pitney Bowes
17 8
+
1
Addressograph
19 9
-
3
Walgreens
11 8
Eckerd
2 2 9
-1

260
Appendix
8.B
Total Number
of Acquisitions
during Era
Company
Studied
Wells
17 Bank of America
22 Burroughs
2 2 Chrysler
1 4 Harris
4 2 Hasbro
1 4 Rubbermaid
20
Teledyne
85
Total Number
of Divestitures
during Era
Studied
Overall
Success
Rate
of
Acquisitions
Strategy
"To construct this table, we determined the total number of acquisitions conducted by each company from the pretransition decade to
1998. We then assessed each acquisition on a scale of
-3 to +3, basing our on both financial and qualitative analysis, and created an average score based on these scores. In the case of we could not obtain enough research data to conduct a thorough analysis and thus did not assign a score to the company.

C HAP TE Rb b
1. West with the Night (San Francisco North Point Press,
25.
2. Stock return calculations in this book were determined using data from the University of Chicago Center for Research in Security Prices (CRSP). Key definitions Monthly Total Return The total return to shareholders in a given month, including dividends reinvested, fora n individual security. Cumulative Stock Return The compounded value of invested in an individual security between times t land using the formula
(1
+ Monthly Total Return ml+ Monthly Total Return m)
(1
+ Monthly Total Return where ml end of the first month following t lend of the second month following t land so forth. General Stock Market (also called the General Market or just the Market value-weighted return, which consists of the combined market value of all companies traded on these exchanges including dividends reinvested) weighted by the capitalization of the company divided by the capitalization of the market. Cumulative Return Ratio to the Market At the end of any given time, this ratio is calculated as the cumulative return of invested in the company divided by the cumulative return of invested in the general stock market, where the is invested in both the company and the market on the same date. Transition Date (for good-to-great companies The precise transition date fora good-to-great company is the date when the company's mance- in terms of cumulative stock returns relative to the general stock market-turns upward after a period of market to below-market performance, and never again falls below this point.
3. Using University of Chicago Center for Research in Security Prices data, cumulative returns were calculated from December 31, 1984, to December, for GE and the general market, all dividends reinvested, adjusted for stock splits.
4. The chart on page 2 was created using the following methodology

Notes
1. For each good-to-great company, invest $1 at the transition date minus
15 years. Also invest $1 in the general market. Calculate the cumulative stock return of $1 invested at the transition date minus 15 years through the transition date plus 15 years for the good-to-great company and the general market. In the case of CRSP data not being available (usually because the company was not yet publicly traded, merged, or was acquired, use market returns in lieu of company returns.
2. For each good-to-great company, calculate the ratio of cumulative stock returns to the general market from t
-
15 tot to create a "ratio of cumulative returns" curve.
3. Shift this "ratio of cumulative returns curve" for each good-to-great company such that at the transition date, the ratio of cumulative stock returns to the market equals precisely 1. This shifts the transition dates for all the good-to-great companies to a common reference point-time t. Do this by dividing the ratio of cumulative stock returns to the market at

Download 3.69 Mb.

Share with your friends: