Bidder Gains and Losses of Firms Involved in Many Acquisitions (original) (raw)
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Do Bidders Gain in Related Acquisitions? Some Evidence from UK
International Journal of Economics and Finance, 2012
This study examines the performance of related bidders over short-and long-term horizons. Acquisitions are examined between companies within the same industry from a sample of completed UK takeovers between 1994 and 1998. Performance is compared to unrelated acquisitions and also size and industry control portfolios. We also examine the effects of form of financing and the preferred method of payment by larger and smaller related bidders. It is found that related takeovers occur mainly in underperforming industries. Significant differences are found in long-horizon performance with regard to bidder size and also the method of payment.
Do Wealth Creating Mergers and Acquisitions Really Hurt Bidder Shareholders?
We examine the expected economic benefits of mergers and acquisitions. We conclude that both signaling and revelation biases are responsible for the commonly reported finding that on average takeovers are harmful to acquirer shareholder wealth. After accounting for these two biases that lead to a price fall on announcement of 18.9% ($563.9 million), we demonstrate that acquirers generally benefit from takeovers with an average 81% share of the economic gains from the transaction. By studying bids that fail for exogenous reasons, which are largely free of signaling and revelation biases, we confirm the neoclassical view that takeovers are positive NPV projects for a typical acquirer, which produce a sizeable return on capital of 21% to the acquirer ($626.6 million) and 21.2% ($772.2 million) to the combined acquirer-target. This conclusion is based on two important findings. First, on a failed acquisition announcement, the combined acquirer and target value on average falls, where both target and acquirer suffer significant negative abnormal returns. Second, acquirers share in a significant portion of the economic benefits of a successful acquisition, reflected in a significantly positive relationship between acquirer and target stock returns utilizing a 60-day initial bid announcement window and a 100-day period following the termination announcement. Over the same window, exogenously failed cash bidders significantly underperform successful cash bidders by 10.7% and exogenously failed stock bidders significantly underperform successful stock bidders by a further 15.5% making a total differential of 26.2%. Moreover, in the long term, stock-funded targets typically only receive half the premium of cash targets.
Do Wealth Creating Mergers and Acquisitions Really Hurt Acquirer Shareholders?
2011
We examine the expected economic benefits of mergers and acquisitions. We conclude that both signaling and revelation biases are responsible for the commonly reported finding that on average takeovers are harmful to acquirer shareholder wealth. After accounting for these two biases that lead to a price fall on announcement of 18.9% ($563.9 million), we demonstrate that acquirers generally benefit from takeovers with an average 81% share of the economic gains from the transaction. By studying bids that fail for exogenous reasons, which are largely free of signaling and revelation biases, we confirm the neoclassical view that takeovers are positive NPV projects for a typical acquirer, which produce a sizeable return on capital of 21% to the acquirer ($626.6 million) and 21.2% ($772.2 million) to the combined acquirer-target. This conclusion is based on two important findings. First, on a failed acquisition announcement, the combined acquirer and target value on average falls, where both target and acquirer suffer significant negative abnormal returns. Second, acquirers share in a significant portion of the economic benefits of a successful acquisition, reflected in a significantly positive relationship between acquirer and target stock returns utilizing a 60-day initial bid announcement window and a 100-day period following the termination announcement. Over the same window, exogenously failed cash bidders significantly underperform successful cash bidders by 10.7% and exogenously failed stock bidders significantly underperform successful stock bidders by a further 15.5% making a total differential of 26.2%. Moreover, in the long term, stock-funded targets typically only receive half the premium of cash targets.
Financial risk assessment in takeover: the effect of bidder firm shareholders' wealth
International Journal of Risk Assessment and Management, 2003
Motive studies investigate takeover rationale and the wealth effect on bidder shareholders, but with mixed results. Assuming semi-strong efficiency, this paper argues that ambiguities result from the ignorance of the distortion effects of distressed acquirers in a sample. Event studies that monitor market reaction to takeover news allow the examination of relative wealth effects, when non-distressed and distressed bidders are properly separated. Results strongly suggest that the market differentiates between good and bad bidders effectively, despite the noise that frequently accompanies takeover activity.
Short- And Long-Term Wealth Gains From UK Takeovers: The Case Of The Financial Industry
Journal of Applied Business Research (JABR), 2014
The present study analyzes the short- and long-term performance of UK financial acquiring firms by examining a sample of 40 takeovers over the period 19962007. In particular, it investigates i) the short- and long-term stock return performance of these acquiring firms and ii) the relation between their short-term abnormal return around the announcement date of takeovers and their long-term performance. The event study methodology shows that bidders experience significant short-term wealth destruction. In contrast, both the buy-and-hold abnormal returns and bidders portfolio return approaches indicate positive and significant wealth effects over the long run. Business cycle analysis shows that acquirers obtain significantly higher returns during downward financial market cycles. Furthermore, the results show that the market reaction to the bid announcement better predicts bidders long-term performance in the case of positive short-term abnormal returns.
Does overvaluation of bidder stock drive acquisitions? The case of public and private targets
International Journal of Banking, Accounting and Finance, 2013
We test the implications of the misvaluation hypothesis for a large sample of acquirers of private and public target firms. Consistent with the misvaluation hypothesis we find that acquirers are overvalued. The overvaluation is higher for stock acquisitions of private targets. We find that the announcement period returns are lower for firms that are overvalued at the time of acquisition. Announcement period returns are lower for larger acquisitions of public targets and higher for larger acquisitions of private targets. We also examine the factors that determine stock as the method of payment. Consistent with the misvaluation hypothesis we find that firms that have higher valuation measures at the time of acquisition tend to use stock. Acquirers of public targets tend to use stock more frequently.
Journal of Economics and Finance, 1993
This paper examines the sources of value to acquiring firms to expand the understanding of mergers and acquisitions. The firmspecific rationale that motivate firms to acquire other firms are examined, along with how these rationale impact the shareholder wealth of acquiring firms when the acquisitions are announced. A logit regression model is utilized to compare financial characteristics of acquiring firms to those of non-acquiring firms. The relation of these characteristics to the shareholder wealth effects experienced by acquiring firms when they announce acquisitions is also examined. The results support hypotheses that firm size and cashflow payout impact the decision to acquire. Capital structure, management performance, and cash-flow payout are related to the wealth effects of acquisition announcements. Better fitting models result when industry effects are controlled by measuring firm characteristics as relative deviations from industry values.
Gains and Payments of Mergers and Acquisitions: Further Evidence from the Uk
Corporate Ownership and Control, 2012
Using the UK data and the standard Event Study methodology framework, the wealth effects of target and acquiring companies involved in merger and acquisition activities over the period from 2000 to 2010 is investigated. Further, we extend our analysis to examine the financing payments of M&A transactions using various test models, namely the size-deciles (SD) control model, Hoare-Govett small companies model, index model (IM), market model (MM) and the capital asset pricing model (CAPM). The results in general indicate that target companies obtain significantly positive and higher abnormal returns than those obtained by the UK acquirers. The results are positively associated with cash offers used in financing the merger and acquisition transactions. Consistent with previous studies we found no clear pattern of abnormal returns around the announcement period for the UK acquirers. Interestingly, the five different test models are generally found to produce similar levels of abnormal r...
Shareholder Wealth Effects of Large European Takeover Bids
2002
Abstract: In this paper, we analyse the short-term wealth effects of large (intra) European takeover bids. We find large announcement effects of 9% for target firms, but the cumulative abnormal return that includes the price run-up over the two-week period prior to the event rises to 20%. The share price of the bidding firms reacts positively with a statistically significant announcement effect of only 0.7%.