Incomplete acquisitions Incomplete acquisitions: The role of spatial geography and strategic interdependence in the U.S. chemical manufacturing sector

Extensive research on acquisitions has examined the subject of operational synergy but failed to find consistent evidence that potential operational synergies generate superior acquisition performance. We explore the idea that implementation obstacles often crowd out potential benefits of operational synergy, focusing on the completion of announced acquisitions as a first step of acquisition performance. Given that implementation relies heavily on information, communication, and knowledge transfer, we examine whether distance, which typically increases the costs of such interactions, also increases the likelihood that strategically interdependent acquisitions remain incomplete. Using a sample of more than 2,000 domestic acquisitions implemented by 933 US chemical manufacturing firms from 1980 to 2003, we find that strategically interdependent acquisitions become increasingly unlikely to be completed as the distance from acquiring to target firms increases. We also find evidence that greater frequency of incomplete acquisitions makes firms more susceptible to being taken over by other firms. These results support the premise that the inability to complete announced acquisitions represents a failed bidding process that lowers firm value and makes firms attractive for takeover by other firms.