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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  12 loans are used to meet immediate cash requirements, whereas, long-term loans (five to ten years) are used to underwrite the cost of business operations and expansion. The problem is that too much of a debt load can be highly destabilizing to an organization. The debt-driven deal will sometimes impose suffocating interest charges and repayment schedules on companies that were once financially stable. As a consequence, the borrowing companies are unable to withstand financial downturns in the marketplace thus causing the value of their stock to decline significantly. In response, the company may sell off valuable assets which defeats the whole purpose of having engaged in a mergers or acquisitions strategy in the first place. In the worst case scenario, excessive debt load may force a company to default on its loans and seek Chapter 11 protection (Wasserstein, 1998). When Mergers and Acquisitions Fail Not all mergers and acquisitions are successful. As companies feel the pressures of increased competition, they embrace a somewhat faulty assumption that increased size makes for a better company. Yet upon closer examination, it becomes clear that this is not always the case. Often, the combining of two major firms creates problems that no one could foresee. A failed merger or acquisition can be highly disruptive to both organizations in terms of lost revenue, capital debt and a decrease in job performance. The inevitable result is the elimination of staff and operations as well as the potential for bankruptcy. In addition, the effects on the support (or host) communities can be quite destructive (Wasserstein, 1998). There are four reasons that help to explain why mergers and acquisitions can sometimes fail. They include:

Authors: Gershon, Richard. and Alhassan, Abubakar.
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12
loans are used to meet immediate cash requirements, whereas, long-term loans (five to

ten years) are used to underwrite the cost of business operations and expansion.
The problem is that too much of a debt load can be highly destabilizing to an

organization. The debt-driven deal will sometimes impose suffocating interest charges

and repayment schedules on companies that were once financially stable. As a

consequence, the borrowing companies are unable to withstand financial downturns in

the marketplace thus causing the value of their stock to decline significantly. In response,

the company may sell off valuable assets which defeats the whole purpose of having

engaged in a mergers or acquisitions strategy in the first place. In the worst case scenario,

excessive debt load may force a company to default on its loans and seek Chapter 11

protection (Wasserstein, 1998).
When Mergers and Acquisitions Fail
Not all mergers and acquisitions are successful. As companies feel the pressures of
increased competition, they embrace a somewhat faulty assumption that increased size makes
for a better company. Yet upon closer examination, it becomes clear that this is not always
the case. Often, the combining of two major firms creates problems that no one could foresee.
A failed merger or acquisition can be highly disruptive to both organizations in terms of lost
revenue, capital debt and a decrease in job performance. The inevitable result is the elimination
of staff and operations as well as the potential for bankruptcy. In addition, the effects on the
support (or host) communities can be quite destructive (Wasserstein, 1998).
There are four reasons that help to explain why mergers and acquisitions can

sometimes fail. They include:


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