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Does M&A Create Value? A Case from the US Auto Industry

Daeheon Choi, Chune Young Chung, Kyung Soon Kim, Jason Young

Abstract


Background: This study aims to present a comprehensive analysis of Ford Motor Company as a potential acquisition target. Methods: We analyze the case of Ford Motor Company in the US market and consider its various firm characteristics related to value creation as a result of M & A. Results: Based on reasonable parameter values from Generalized Method of Moment estimation, we calculate the expected return on Ford’s assets (weighted-average of returns on fixed and variable assets), and the estimated return is about 14%, whereas the weighted-average return on Ford’s equity and debt since 1990 is about 16%. Conclusion: Overall, the results suggest that Ford’s asset is undervalued and acquiring Ford is not going to be a bad deal before considering any associated costs, such as legal fees, in this deal.


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