The Enduring Shame of Khaki

Why Indian cops are the most brutal and brutalised lot in this so called feudal democracy.

Most of us have our favourite cop stories, ranging from the gruesome to the bizarre. Here goes my favourite cop story: back in the 1990s, my parents were staying in a town in one of the BIMARU states. They went back home after a few weeks of holidaying in Delhi and found the house ransacked by thieves. Virtually everything that could be carted away was taken, including the LPG cylinder and the stove. They went hesitantly to the local police station where the cop in charge was actually very polite with them but made it clear that my parents should forget about the whole thing. Typical of many Indians, they decided to fall back upon `connections'. They called up one of my cousin uncles who is a very senior cop. In less than 24 hours, the station house officer (SHO) paid a visit to our house and promised action in double quick time. He also sheepishly suggested that if my parents had disclosed their ‘connections’, he would have been spared a dressing down from his boss. In another 12 hours, the thieves were arrested and virtually all stolen items, including cassette tapes, recovered. My parents were astonished at the speed and efficiency with which the cops acted.

That tale just about sums up the state of Indian police and the nature of cops in this country. In many ways, they are a perverted version of Dr Jekyll and Mr Hyde. Which face you get to see depends on ‘who’ you are. If you are an unknown girl in Punjab who goes to the cops to complains about harassment and lewd remarks, and if you don't ‘know’ anyone, chances are that the cops will beat you up instead of taking action against offenders. If you are the poor mother of a six -year-old girl in Aligarh who has been raped and killed, you will be thrashed brutally and in full public view if you have the effrontery of demanding justice. If your five-year-old daughter in a poor locality of Delhi goes missing, the cops will refuse to register an FIR despite the new anti rape law. Worse, after the girl has been discovered raped and brutalized, the cops will offer you Rs 2,000 to keep your mouth shut. And of course, if you are a member of the ruling class, you don't even have to pay a visit to the police station. The cops will come to you and pull out all stops and use the entire might of the state machinery to help you. No amount of breast beating and debating the desperate need for police reforms (see related story) will hide this ugly reality of Indian cops. Kiran Bedi can go on and on in television studios about the need to sensitize the men in uniform. And yet, an ACP rank officer of Delhi Police named Ahlawat nonchalantly slaps a 17 -year-old girl activist in full glare of TV cameras as if he is cuddling her.

What are the adjectives that instantly come to mind when you think about Indian cops? Overbearing, brutal, callous, insensitive, rude, corrupt and inhuman are just some of the more common adjectives that spring to mind when we think of cops. Sociologists and  pop psychologists will have us believe that the Indian cops come from within the society and that their often bestial behaviour reflects poorly on our society and the values that we project as a whole. The logic is: what can you expect from a cop who has been brought up as a child believing that Muslims are terrorists? Similarly, if caste discrimination is deep rooted and widespread across all sections of society, how can you expect a cop to treat a poor Dalit in a more humane manner? As sociology and psychology goes, that is all very fine. But justifying the absolutely rotten behaviour of the cops by blaming social ills will spell the death knell of Indian democracy. No nation can survive without the rule of law. And it may sound pedagogical and trite, but if those given the responsibility to uphold and protect the role of law brazenly flout it, we will breed anarchy at all levels. And it is systems and institutions that make the crucial difference. There are many friends from villages (see related story) who grow up and move along different career paths. One joins the army while the other, from an identical social and economic background becomes a cop. Just see the difference in the behaviour and nature of the two and just see how society treats the two in completely different ways. The army guy gets our respect while his friend the cop commands fear and contempt.

The tragedy is: there are thousands of cops who are brave and honest and who do a superb job of policing. Just look at the police constable Omble who sacrificed his life so that Ajbal Kasab could be caught alive during 26/11. There are numerous such unsung heroes and heroines in Indian police who perform their duties to the best of their abilities. But so rotten is the system that the media and the society gets a dozen examples of inhuman police behaviour for every one example of exemplary devotion to duty.

Once again: it may sound trite. But the only solution to this is accountability and absence of political interference. If Dr Manmohan Singh is indeed serious about the whole issue, the least he can do is intimate steps that will result in the summary sacking of ACP Ahlawat and the arrest of policemen who first refused to file an FIR and then tried to bribe the family members of the 5-year-old rape victim.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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Brave New World

The Bombay of the early 1990s opened a world hitherto unseen and the doors of perception had truly been opened, remembers Sutanu Guru

My first encounter with Maharashtra was pristine, ivory tower, innocent and almost like a first love. A small town hick from one of the BIMARU states, I was dreaming of pursuing a Masters in Economics from the hallowed JNU after my graduation. But there was a strike in 1983 in JNU and we were not sure if they will admit students from BIMARU states (Yeah, I know there was no Internet in those days). I was advised to try my hand at Gokhale Institute of Politics and Economics which was highly regarded. After some sniggers and snide suggestions about my pronunciation and conversation skills, I was given a place. Boy, how it opened a whole new world for me. And how.

The batch had just 32 students and the hostel where we stayed had just 32 single rooms. There was Fergusson College next door and a small hilltop called a "tekdi" right above the campus. And of course, Deccan Gymkhana, the area where it was located, was full of retired  Maharashtrians who loved taking long early morning walks. Greenery was a given. And the Film Institute was just about 2 kilometers away. Apart from falling in love with a classmate who taught me Marathi, I fell in love with the Servants of India Society library that reminded me of Thomas Hardy and The Bleak House. I also developed a lustful attraction towards one of our young teachers whose name I forget and began to admire a young professor called Bibek Debroy because he used to allow us to smoke in classroom (of course, he was a brilliant teacher too!). Half the batch was from outside Maharashtra and there were the usual vibes about being a local or not. And yet, all differences vanished when we debated the relevance of Baba Amte, the great anti-leprosy fighter and a man that Anna Hazare can never be. All differences vanished when we heard of V. M. Dandekar, the man who sort of started the poverty ratio debate in India. That short man with a white beard and sort of timid jumping steps was someone we held in awe. As we did Bhimsen Joshi who captivated us hicks all night with his magical voice in concerts. You may not believe it, but some of us actually read Marx and Keynes and animated debates over them through the night; sometimes helped by grass, Led Zep and Doors. Without realizing, I had realized I had started conversing in Marathi. But there was a darker side. Once, when me and my Konkan Marathi lady friend and some other friends were buying cigarettes, I was abused in Marathi by some young guys because I made a joke about Marathi. I wanted to respond in anger, but was dragged away by the friends saying it is not worth fighting with goons of some outfit if I recall was called Patitapavan Sena. My Marathi friends were deeply embarrassed because they knew I understood the abuses flung by those goons at me. We forgot all that soon when we started debating the ultimate what if about what would have been the fate of modern India had Baji Rao Peshwa had not been killed in the Third Battle of Panipat. Some of my Marathi friends were Brahmins, and some were from what we now should call the upwardly mobile castes. I used to sense a kind of anger amongst the later whenever there was any praise of Dada Kondke, Maharshi Karve, Bal Gangadhar Tilak or Gopal Krishna Gokhale. To tell you frankly, I was innocent but not a fool. And in 1983, I sensed that some intellectual morons like us were discussing Marx versus Keynes when Maharashtra actually was being ruled by what my then Marxist friends used to call Kulaks (Sharad Pawar might be a good example today). A small town hick like me who wanted to transcend all this could not fathom how educated guys discussing Marx suddenly became subtle caste foes. And then one day I think I lost my lady friend. When she questioned my status as a Brahmin and asserted how Konkan Brahmins were the purest of them, I could not help pointing out why so many Konkani Marathi ladies had blue eyes. And I laughed. And lost.

I visited Pune again in 2007 and in 2011. Before my 2007 trip in a taxi from Bombay (oh, Mumbai), I had nursed dreams of that old world sleepy charm of the city, despite media torts to the contrary. My colleague Devdas introduced me to some activists on the outskirts of Pune. This was the time when anti-North Indian agitations had already gathered momentum. One of the activists was very happy that a senior journalist from Delhi could speak even broken Marathi. He just opened up and said how the locals were being driven to poverty by this new culture of globalization. I was zapped. Later, I attended a prayer cum motivation session of a group that was responsible for destroying the library of the famous Bhandarkar Institute (close to the Gokhale campus). There, I heard so much vitriol against outsiders and so much hatred against Dada Kondke that I realized I am now in a new Maharashtra. I didn't even go to Gokhale. In 2011, one of my relatives who is studying in Pune, it remains a hot education destination, told me that their lives are made miserable by Marathi goons.

That got me thinking about my other major encounter with Maharashtra. I joined The Economic Times as a young hick in 1986 and actually struggled to find a roof. Thanks to a journalist in Maharashtra Times, the local language newspaper, I found shelter and eventually a paying guest accommodation that had six guys, 20 mice and about a 100 cockroaches in Maximum City. I survived. I loved Bombay of that time because it was so open and meritocratic, if you were willing to work hard. Bombay was exhilarating. I mean, I actually could go to the Taj and to attend a Press Conference and drink so called scotch and have chicken tikka. And then then there were those junkets where a bunch of journalists like me (wow I belonged) were flown to places in Indian Airlines flights to peddle a new public issue which is now called an IPO. But most importantly, Bombay of those times was dreams. I still remember my stint in Business World where Dilip Thakore was the editor. I wrote a story on garment exports and he seemed happy with it. I actually got to meet either Ajay or Dilip Piaramal with Dilip in the hallowed corridors of Bombay Gymkhana. I was so excited after that meeting that me and my friends went on a binge that ended in a place called Gokul in Colaba and then lots of food in what is now called Bhendi Bazaar. You know, the waiters who served us food were Muslims, as were the owners of those joints. They looked at you with a snigger. But they didn't give a damn about the nationality, caste, religion or gender of the person who paid the bill. It is not as if we hugged each other. The realization of "difference" was there even then. But it used to be a kind of live and let live. The live and let live dictum was visible even in that famous Anil Ambani-Tina Munim marriage where a huge media contingent from Delhi was invited. By then, I had shifted to Delhi and was part of that contingent. Even back then, in 1991, the fault lines were clearly visible. The Shiv Sena was no longer just a Bombay- centric party whose cadres used vocal and muscle power to do what they wanted to do. It had emerged as a strong political challenge to the Congress.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman

ExecutiveMBA

Stanley Kubrick to Anthony Burgess

In 1968, shortly after finishing 2001: A Space Odyssey, Stanley Kubrick began work on what he would later predict to be "the best movie ever made" — a meticulously researched, large-scale biopic of Napoleon Bonaparte. A few years later, after adapting Anthony Burgess's A Clockwork Orange for the big screen, Kubrick brought Burgess on-board to write a Beethoven-inspired Napoleon novel on which his epic could be based. In June of 1972, Burgess supplied the filmmaker with the first half of his manuscript; Kubrick rejected it by way of the following letter, thus ending the collaboration. Burgess was undeterred, and Napoleon Symphony was published as a novel in 1974. Kubrick's movie, however, failed to materialise.

15 June, 1972

Dear Anthony,

TI shall start off by saying I don't really know how to write this letter, and that it is a task which is as awful for me to perform for me as it may be for you to read.

You are far too brilliant and successful a writer, and I am far too much of an admirer of yours to patronize you with a listing of what is so obviously excellent about 'Napoleon Symphony'. At the same time, I earnestly hope that our all too brief friendship will survive me telling you that the MS is not a work that can help me make a film about the life of Napoleon.

Despite its considerable accomplishments, it does not, in my view, help solve either of the two major problems: that of considerably editing the events (and possibly restructuring the time sequence) so as to make a good story, without trivializing history or character, nor does it provide much realistic dialogue, unburdened with easily noticeable exposition or historical fact.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year

BBA Management Education

"Much of the Western journalism in Afghanistan today assumes that any Afghan who takes up arms against the West is a fanatical intolerant Muslim who is doing it for religious reasons"

William Dalrymple's new offering, Return of a King, is a fabulous account of the First Anglo-Afghan War and its disastrous consequences. As another defeat looms large in Afghanistan, he talks about the obvious parallels and divergences in an interview with Saurabh Kumar Shahi

What prompted you to write a book on the First Anglo-Afghan War? Did you find enough curiosity among the readers to lap up this subject?
The reason I write any book is not primarily what the readers want, I have to say. The first rule to write a successful book is you need to be passionate about it yourself. Having said that, I must add that it is a consideration. There are thousands of books I want to write on subjects, like my family history etc., who no one else will be interested in reading about. So, readers are a consideration. But it is not the only consideration. While I knew it would not be as successful in India as, say The Last Mughal; as the subject is not directly related to India, I expected it to sell in countries who are affected in one way or other by Afghanistan, including the 50-odd countries that are part of International Security Assistance Force (ISAF). So I thought it was a risk worth taking. Although you are right, it is not a famous story anymore. Very few people know this tale and fewer still know Shah Shuja. So it was a gamble. But the story was fabulous - the simple cinematic image of 18,000 soldiers marching in a country and only one man managing to return past Jalalabad is a driving force. It is such a strong and eternal image that it will work for a thousand years to come.

The impressive bibliography suggests that you brought in a whole new set of research materials for this book, including those from Afghan poets, chroniclers as well as British officers. Often such materials tend to be partial and exaggerated and incorporate folklore...
Sure, it is a different sort of source to the British colonial source. So, if you have a letter from Lord Aukland saying I want to move 5,000 troops from Barrackpore to Lucknow, you can be sure enough that 5,000 sepoys moved. When an Afghan poet says “A hundred thousand brave horsemen charged over the hill and made the Firangis flee for their life”, you obviously don’t take it with the same literal sense. But it is incredibly helpful in many ways, especially the way it portrays Afghan attitudes, and also who the people doing the fighting were – their motives. As with much Western journalism in Afghanistan today which assumes that any Afghan who takes up arms against the West is a fanatical intolerant Muslim who is doing it for religious reasons. The interesting part is that in Afghan sources you get very distinct reasons. The religious factor is there, and it is expressed as it is in rhetoric. But individual reasons are well defined by the Afghan sources. Abdullah Khan Achakzai participated because his girlfriend was seduced by Burnes. Aminullah Khan Logari joins in because his land is taken from him. However, you have to use them carefully. But you use British sources carefully too as they come with their own problems, including incorporating the imperial views.

It is not difficult to see some very obvious parallels between the 1842 war and now. Was there a deliberate attempt on your part to illustrate these parallels or were they so obvious that they would have come to light even without a little help from the writer?
I guess it was so obvious that I did not need to overdo it. The only times I explicitly talk about the parallels are in the introduction and conclusion. In the main body of the book, except the odd footnotes where I pass through a territory and say that it is now a US base or garrison, nothing is deliberate. Again, I have also pointed out differences. I think it is important to say that Hamid Karzai, with all his corruptions and failures, is at least a democrat. And similarly, Mulla Omer, although he has great following in some areas in the south, especially in and around Kandhar, is by no means a dominating central figure of resistance in a way that Akbar Khan and Dost Muhammad were in 1842. But readers would be awed by the astonishing parallels nonetheless.  

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year

BBA Management Education

The unputdownable!

Subrata Roy Sahara should come out winning on all fronts in the current face-off with SEBI! And why the erroneous Supreme Court judgment against Sahara goes beyond Parliamentary Acts and is being misused by SEBI to its own benefit!

There are a few things about Subrata Roy Sahara that even his harshest critics accept. That the man is a visionary – his mammoth investments in media, housing, hotel, sports and other industries being compelling evidence. That his open assertions of being a patriot have their weight in the various behemoth social initiatives undertaken by his group – with no apologies to the slanted English media in India which, I feel, hypocritically slanders anyone who represents the ‘other’ India (lest you should forget, it was this very media that shamelessly reported gossip a few years ago about him being ‘critically ill’ and on his deathbed; no surprises then that the same English media chose to ignore reporting how sprightly he was while meeting UK Prime Minister David Cameron a few weeks back in a closed door meeting discussing educational and research initiatives). And yes, that the man religiously knows his numbers and has a financial acumen that is better than the combined intellect of all Indian regulators in the various industries where he operates.

There are a few things about India that even its damnedest supporters don’t deny. That the License Raj era spewed out a few handfuls of family businesses that shamelessly chewed away the very idea of India, criminally sucking it hollow by monopolising industries, encouraged by corruption soaked politicians – and encouraging them in return. That this venomous combination over the decades led to a jaundiced India that today has hundreds of millions of illiterate people below the poverty line; that has no global brands to speak of, but many billionaires borne out of the excesses of the License Raj era (I call most of them ‘blood billionaires’, given that they’ve made the money on the blood of Indians). That the same group of blood billionaires, in cahoots with a similar group of corrupt bureaucrats (regulators included) and politicians, have fought and will fight tooth and nail, criminally and illegally, to ensure that there is no new honest and ethical claimant to their industry space, especially if such an entrepreneur were from the proletariat.

That Subrata Roy Sahara titles himself as the Managing Worker of his group only adds to the ire of India’s caustic bourgeoisie, which, hand in hand with the English media, would be loath to have such an unabashed community representative of workers amongst their well ‘oiled’ and ‘greased’ group. So every time Subrata Roy Sahara and his likes attempt to tread the path of diligent and astute effort – assuming the same equated to returns – they’re pulled down acerbically and vindictively by the group representing the old, feudal India. You see, this group believes that only they know how India should be run and by whom. Look around and you’ll see many examples strewn across India of how honest upstarts have been trampled upon by the powers that be before they could gain ground – wherever there has been anyone attempting to improve the condition of India, they’ve had a horde of regulatory, tax, police and judicial bodies running up their door to initiate the so-called enquiries and ‘search’. The current face-off that Subrata Roy Sahara has with SEBI actually exemplifies all this too well. A group that has issued OFCDs (Optionally Fully Convertible Debentures) since the year 2001 with all relevant government permissions, and which has regularly submitted all details as required by the concerned government authorities, suddenly gets a prohibitory order from SEBI in November 2010 against the OFCDs issued by two unlisted group companies (Sahara Housing Investment Corporation Ltd. and Sahara India Real Estate Corporation Ltd.) – and this despite the fact that just seven months before that, SEBI had, through its own communication to Ministry of Corporate Affairs, commented that as these were unlisted companies and had not filed a draft red herring prospectus with SEBI, any complaint with respect to these two companies should be handled by the Ministry of Corporate Affairs.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

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Why He Will Be even More Dangerous for India in 2013

This man has already achieved what no other non-member of the Gandhi family has ever done. The closest to his record is Atal Bihari Vajpayee, who was Prime Minister for six consecutive years between 1998 and 2004. P. V. Narasimha Rao is another non-Gandhi who completed 5 uninterrupted years as the Prime Minister. The next best is a Gandhi family member Rajiv Gandhi, who led the government between 1984 and 1989. No other Prime Minister – except Jawaharhal Nehru and Indira Gandhi – has survived five uninterrupted years as Prime Minister. Nehru was PM continuously from 1947 till his death in 1964. Indira Gandhi was PM between 1966 and 1984, except for a two and half year exile between 1977 and end-1979. The way things are changing in Indian society and economy in terms of aspirations and expectations, even die-hard supporters of Congress will snigger at the suggestion that Rahul Gandhi could be Prime Minister for 10 consecutive years beginning 2014. So there is absolutely no doubt that, in a factual context, Manmohan Singh has already secured his place in history. It is a different matter that an ‘unelectable’ bureaucrat completing 10 successive years as Prime Minister reflects on the quality and the depth of Indian democracy. But credit must be given. Manmohan Singh will almost certainly complete 10 years as PM. But will history talk about him and his lengthy tenure the way it will keep dissecting the track record of Nehru and Indira? For that matter, forget Nehru and Indira, will he ever acquire the stature that even Vajpayee has assured for himself? Let’s look at it in another, more blunt manner: will history ever talk about the legacy left behind by Manmohan Singh? Quite frankly, history books will confine him to a supporting role at best as they analyze the legacy of Sonia Gandhi. Sad, but Dr. Singh will leave behind no legacy: faceless bureaucrats who selflessly do the bidding of political masters never do so.

And yet the man, the economist, the bureaucrat, the courtier and the reluctant politician knows that he has achieved something phenomenal by becoming Prime Minister for two consecutive terms. And even faceless bureaucrats have egos and dreams. There is no doubt whatsoever that Dr. Singh knows his days as Prime Minister are numbered. He knows that even if the UPA manages to win another term in 2014 and Rahul Gandhi decides he is better off enacting the role of Sonia Gandhi by pulling the strings from behind the scenes, it is another courtier who would be anointed Prime Minister. He also knows that fawning Congressmen will instantly delete him from even contemporary footnotes the moment another courtier takes his post. I mean, if they don’t care a fig about him even now when he is the Prime Minister, what chance would he have as an elderly statesman without even the fig leaf of perceived power and authority? Surely, it must be rankling. It would rankle any normal human being with normal feelings and human emotions. And Dr. Singh is undoubtedly the embodiment of middle class normalcy.

This is where India begins to enter very dangerous times. Dr. Singh would be determined to leave at least some legacy behind. He is not a fool. He knows there is no chance of a political legacy of the kind left behind by Nehru, Indira and Vajpayee. He also knows that history books will credit not him, but Narasimha Rao as the architect of economic reforms. In fact, in terms of economic performance, his long tenure as PM would be torn to shreds by objective historians. Do remember, he was aware of all this even back in 2008 when it was not certain that the UPA would be voted back to power.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year

BBA Management Education

M&As: A Phenomenon of the Market

M&As have always been an area of debate for business experts. However, new research explains who acquires whom, whether payment is made in cash or stock, what valuation consequences arise from mergers, and why there are merger waves

In the late 1990s, the United States and world economies experienced a large wave of mergers and acquisitions, culminating in the bursting of the Internet bubble and the subsequent stock market fallout.

Until now, there have generally been two ways to understand mergers and acquisitions. One explanation relies upon the notion of synergy, i.e. the greater profit potential that results from combining two companies. The second explanation suggests that mergers and acquisitions are the product of bad management being kicked out by better management.

Previous research has addressed the separate merger waves of the past 40 years, offering a different explanation for the waves of the 1960s, ‘80s, and ‘90s. A new study, Stock Market Driven Acquisitions, undertaken by me and Andrei Shleifer of Harvard University, offers a more unified framework for understanding the different characteristics of acquisitions and how they vary over time.

We suggest that mergers and acquisitions are a financial phenomenon created by stock market misvaluations of the combining firms, and are related to the level of the market as a whole. Markets are inefficient, while managers of firms are rational, taking advantage of stock market inefficiencies through well-timed merger decisions. The objective was to come up with a simpler theory recognising that valuations differ from true fundamental values temporarily because of market sentiment. In part, companies make acquisitions or become targets of acquisitions to benefit from stock prices that are temporarily out of whack.

The Spiraling Effect of Misvaluation

A company’s valuation may be heavily influenced by investor psychology, since expectations for growth are built into the price investors are willing to pay. For example, to justify paying a price-earnings multiple of 150 ($150 per current dollar of earnings), you would have to believe that the company’s earnings will grow dramatically over the next five to seven years.

We find that in the 1990s, the valuations for the market were pushed up for some companies much more so than others, creating the “haves” and the “have nots.” Misvaluation in this context refers to the “haves,” such as America Online (AOL), Cisco, and Intel, being deemed worthy of excessively high valuations based on unrealistic growth expectations. These companies knew their share price would fall when the market learned of its overconfidence. The star companies therefore had a short-run opportunity to cash in by using their stock as currency to buy other companies-hard assets that were more sanely valued.

Our model says there was some sanity prevailing among the CEOs of high-flying companies. They knew that the valuations were unreasonable, so by acquiring all these earnings producing assets in exchange for their shares, they cushioned themselves from the full impact of the bust.

Why would a company agree to be sold in exchange for overpriced stock? The answer can be found in the different “horizons” of corporate managers. Horizons refer to how long a manager wants to hold onto a company. Managers with short horizons might wish to retire or exit, or simply have options or equity they are anxious to sell. Managers with long horizons might want to keep on working, be locked into their equity, be overconfident about the future, or just love their business.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face

BBA Institute