In this episode, I'd like to say a few words about the challenges that we face on this way of studying M&As. Well, I would start with terminology. Well, you can say, "Why is terminology a challenge?" And here, the thing is that oftentimes, the terms that are used in this area, well, first of all, they are very sometimes strange and even funny. Well, we will see that through this course. But the problem is that in this area, like in no one other in finance, we can see this notorious fact of the Tower of Babel when people understand the same terms differently. And that depends on the fact that different stakeholders oftentimes take them differently. So, this is important and clearly within the scope of our discussion. We will not go further in detail to all these terms. They are widely represented in our handouts and clearly in the textbooks that I refer to, and so we do not pay the greatest attention to that. But the important thing is to raise this red flag that we cannot just take them as a word and then say, "Well, I will understand that the way I'd like." That may be a challenge and that may result in certain problems. As an example and as another big thing, I would use the idea of synergy. Well, this course even has a subtitle in pursuit of synergy. So, it seems that this is the core idea in M&As. Well, synergy is when you combine two values and then the resulting sum has greater value. So, basically, in a very metaphoric word, it's like two plus three is seven. Well, you all know that the more realistic thing is that two plus three is four or sometimes even one. So, here we claim that this is bigger than the sum, but here what I claim that it may be even smaller than sum, but sometimes it will smaller than the values of its contributors because, well, in this case, value is being created here, value is being destroyed. A lot of people are quite skeptical with respect to synergy, and well, not all people at large. I would quote Warren Buffett, that is quoted as saying, "When someone mention synergy, I hide my wallet." Mr. Buffett, as all of you know, is a legendary investor, but he is quite skeptical about these fairy tales. He takes it in a more direct way. Well, let's find some opportunity and then pursue it rather than claim that this is somewhat quoted the "miraculous". Well, so this skepticism is quite wide, but around synergy, there are lots of other ideas because sometimes people say, this promising synergy is a way of brainwashing. That's a way of actually hiding some vague things that are observed in this transaction. That is a way to quote and misinform some important stakeholders in pursuit of the same result that is in the benefit of the people who basically are doing that. Well, we will see that throughout this course how that takes place in detail. But for now, it's important to realize that in order to prevent these situations from happening, you always have to realize what are the prospects of this synergy and what are the challenges to that and whether we can or cannot actually achieve that. Well, another challenge to our study is the idea of change. Well, you know that it's quite popular, but oftentimes people say, "Well, forget everything that you learned before. Now it's all obsolete. We live in the new market. And in this market, technology is changing so fas, and so do the ways of communicating with your clients, ways of implementing projects." So, oftentimes, this change is overwhelmingly most important, and it sort of masks the process by which value is being created or destroyed. So, this for us is a huge challenge. So, we have to be careful in seeing that the very fact that something has changed does not automatically result in the idea of making our framework obsolete. It's funny, but if we studied some periods in time when the M&As activity was the largest, you can see that maybe a couple decades have passed, but major motives, because of the other motives of pursuit of wealth creation, they stay, if not the same, but they stay similar. Now, by the same token, another challenge here is this global context, and globalization in general. Well, we talked about that quite a bit in our courses of capital markets and of corporate finance, specifically, the capital markets. And we said that in recent days, we see even some seeds of the globalization in some areas, but still globalization seemed to be the ruling trend in this world. And again, for M&As, that poses a very special challenge because, remember we talked about stakeholders. But if it's an international transaction and the percentage of international transactions is explosively growing now, you can see that all these stakeholders, they exist in different countries and in different markets. So, the diversity of people whose vested interests are affected is huge, and that is a challenge. Moreover, it's a challenge in setting global trends. For example, now it's sort of trendy to buy the company in another country or in another market, and maybe tomorrow some people will say, "Well, why wouldn't we stick for a while for a national market?" That, by no means, sort of opposes the idea of global trends, but that means that maybe now, this is more beneficial. So, having said all that, I would complete with the fact that the biggest challenge of all, that clearly is a combination of all these services. This is, we might have the big picture blurred. So that is a problem. So, oftentimes, we can see some not most important things. We can see that these groups of stakeholders win. This is likely to produce a new product. This is likely to contribute to technology and change. This is likely to be in accordance with a certain trend. But, if we do not see the real core in this transaction, that may lead in the failure. Well, there are classic examples. One of this that we will be quoting many times throughout this course is a famous M&As that occurred in the year 2000 between America online and Time Warner. That seemed to be the new era of the new world, and it seemed to be such a promising thing that at the time it was going on, even the specialists in the area, they thought that it would be a great thing. But unfortunately, it resulted in massive write-offs in the losses of hundreds, well, at least a hundred billion dollars, and that was a fundamental failure. And it's always easy to say that these companies or these people failed, but that is an example that is a huge lesson that has been studied by a lot of people and hopefully learned by them. And we will study and learn them too, but we'll keep coming back to that in many other episodes and many other topics. So, having mentioned all these challenges, I would like now to proceed further. And in the next episode, I'll put together the general framework within which we will study these transactions. That will be a set of stages. Let's say, a chain of that will lead us from the inception of this idea to hopefully the successful completion of the transaction and the post merger integration. So, along this path, at any stage, studying all these major reasons and the actions, we will always keep in mind our stakeholders, and these stakeholders will change from one stage to the other. But without this framework, we will not be able to proceed. So, starting the next episode and in it, we will put together this general framework.
