Using Variance Analysis to Evaluate M&A Performance: Examining Positive and Negative Synergies in United’s Acquisition of Continental

Abstract

This paper examines strategic tradeoffs in M&A. Using strategic variance analysis (SVA) to examine United Airlines acquisition of Continental Airlines, this paper demonstrates the existence of strategic trade-offs that complicate M&A research and strategies. M&As are complex strategic actions with many motives, strategic intents, and types. M&As are influenced by competing stakeholder groups. Investors and managers generally focus on M&A to improve cash flows and economic value. Regulators scrutinize horizontal acquisitions for anti-competitive effects such as reduced sales volumes and higher unit prices. Managers, while promoting the value enhancing potential of acquisitions, often fail to deliver on their predictions.