Abstract
Applying the real options valuation to measure merger and acquisition (M&A) synergy is highly debatable, with questions arising from the usefulness of this approach in real-world settings. Understanding the full benefits (and possible limits) of real options applications to measure synergy in cross-border merger activities remains a challenge. The main objective of the paper is to explore multiple types of synergies in the recent, highly strategic cross-border merger—the Luminor Group AB deal—and to value those synergies with the real options application. The research found that the sum of values of different types of synergies in M&A deals as the market value added provided by this deal could be valued with real options applications. A real options application may serve as a decision-making tool and at the same time be a useful valuation method of M&A deal synergies. The implications of this paper are twofold. First, the research contributes to corporate financing by providing relevant synergy measurement models in M&A deals. Second, the paper contributes to “grand challenges’’ research topics of international businesses by illustrating how a group of multinational banks solved the problem of income inequality across countries, and balanced inequality within their networks through a cross-border merger.
Highlights
This paper aims to explore multiple types of synergies in the recent highly strategic cross-border merger—the Luminor Group AB (Sweden) deal—and to value five types of synergies (Feldman and Hernandez 2021) with the real options application
Puranam and Vanneste (2016) provided four types of synergies based on the resource-based view (RBV) theory: combination, consolidation, customization, and connection on two different dimensions: “the resource modification required post-acquisition, and the similarity between those resources” (Feldman and Hernandez 2021, p. 8)
As noted by Brandão et al (2005), real options in the broadest sense can be defined as projects that have option-like characteristics; that is, a value of the project is contingent on developments taking place over its duration
Summary
This paper aims to explore multiple types of synergies in the recent highly strategic cross-border merger—the Luminor Group AB (Sweden) deal—and to value five types of synergies (Feldman and Hernandez 2021) with the real options application. Chi et al (2019) argue that the real options theory, in the international business context, could contribute to real options-based research to three core international business (IB) issues: timing and scale of market entry, entry mode, and governance form, and the role of multinational networks In this vein, the cross-border merger of Luminor AB is a suitable case study to synthesize the insights of recent studies on synergies and to discuss the application of the real options theory, to better understand feasible solutions to the above-mentioned IB challenges. The paper contributes to interdisciplinary research by bridging strategic management, the real options theory, and international business discipline in a holistic synthesized view through case study research of the Luminor Group AB, which was established in 2017 and sold to the Blackstone Group (USA) in 2019. At the end of the paper, the author discusses theoretical and empirical findings, limitations, and future work
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