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Right arrow G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
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Industrial and Corporate Change, Volume 10, Number 1, pp. 207-246
© 2001 Oxford University Press

Regular Papers

Competitive Impact of Strategic Restructuring: Evidence from the Telecommunications Industry

Michael Hertzel, Janet Kiholm Smith and Richard L. Smith

Department of Finance, College of Business, Arizona State University, Tempe, AZ 85287, USA
Department of Economics, Claremont McKenna College, Claremont, CA 91711, USA Email: janet_smith{at}mckenna.edu
Peter F. Drucker Graduate School of Management, Claremont Graduate University, Claremont, CA 91711, USA

Abstract

Stock market evidence can provide insights into how firms in rapidly changing markets design and implement strategies. The failed merger attempt of Bell Atlantic and TCI serves as a case study for examining the effects of strategic choices on firms in the telecommunications industry. The paper documents the varying strategies of the seven regional Bell operating companies (RBOCs) and analyzes the stock price reactions of industry participants to the proposed merger and its termination in the context of these differing strategic orientations. Results reveal that the announcement of the merger generated significant spillover effects for other cable and local telephone companies as well as for other industry participants. We use the reactions to test hypotheses regarding the rationale for the merger proposal and the reasons for its demise. Stock price reactions to the proposal were significantly more positive for the three RBOCs that had committed to strategic approaches similar to Bell Atlantic's than for the other three RBOCs. However, reactions to the termination indicate that investors viewed the hierarchical organizational strategy of Bell Atlantic as less desirable than those being pursued by other Bell companies.


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