Workforce Integration and the Dissipation of Value in Mergers, The Case of USAir's Acquisition of Piedmont Aviation
Year: 1997
Type: preprint
Abstract: In 1987, the USAir Group acquired Piedmont Aviation for $1.6 billion in a cash tender offer. Prior to the merger, comparably sized USAir and Piedmont were among the most profitable carriers in the industry. Almost immediately after the integration of the two airlines, USAir became the industry's least profitable carrier and came close to bankruptcy. This paper concludes that the major source of the value destruction in the merger was USAir's workforce integration strategy. The decision to buy labor peace by extending USAir's more generous pay scales and work rules to Piedmont employees accounts for roughly 80% of the $2.5 billion post-merger decline in the USAir's equity value. More generally, we conjecture that the integration of workforces is especially difficult in airline mergers and find evidence consistent with the conjecture. We interpret the USAir-Piedmont case as evidence consistent with Williamson's (1985) argument that the boundaries of the firm are limited in part by considerations of internal equity.
Source: SSRN Electronic Journal
Authors: Stacey R. Kole, Kenneth Lehn
Institutions: University of Chicago, University of Pittsburgh
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1541567569