How do Takeovers Create Synergies? Evidence from France (original) (raw)
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Sources of value in takeovers: Synergy or restructuring–implications for target and bidder firms
Strategic Management Journal, 1992
c Advocates of the market for corporate control argue that takeover bids should be accepted because unsuccessful targets tend to lose market value. Other researchers argue that takeover bi& should be rejected because the combined firms often pe#orm poorly. However, missing in this debate is the infzuence of the source of takeover gains on the decision to reject or accept takeover bids. This study posits that value from takeovers can be created by synergy or restructuring. The study suggests that only if the synergy component is dominant should the target firm agree to be taken over. The study then tests the dominance of the source of value in takeovers by examining takeovers that were unsuccessful. The study concludes that, first, restructuring, not synergy, motivated the sample studied and target firms can create the same value independently. Second the need for restructuring was industry-wide. However, even if restructuring is the motive behind a takeover, the target firm has to carry out the restructuring, failing which it does not create any value. The study also suggests reasons for the ambiguous findings in the strategic management merger literature. I Also, a simple transfer of control without the physical consolidation of the assets of the two firms is unlikely to bring about any synergistic gains. These gains typically arise out of a rationalizing of the different functions-marketing, manufacturing etc-of the consolidated entity. Thus Unisys, notwithstanding their current situation, initially managed to extract substantial operating efficiencies by the physical consolidation of Burroughs and Sperry. Same is true for Kraft and General Foods.
Corporate Takeovers and Economic Efficiency
Annual review of financial economics, 2014
I review recent takeover research which advances our understanding of "who buys who" in the drive for productive efficiency. This research provides detailed information on textbased definitions of product market links between bidders and targets, the role of the supply chain and industrial networks in driving takeovers, target plant efficiency, and preand post-takeover investment in product innovation. Moreover, recent evidence adds to our understanding of "how firms are sold" (transaction efficiency). Almost half of takeovers involving public targets are initiated by the seller and not by the buyer. Targets are strongly averse to bidder toeholds, and the merger negotiation process strongly protects proprietary information. Takeover premiums leave traces of rational bidding strategies, including bid preemption and winner's curse avoidance. Recent tests employing exogenous instrumentation of bidder valuations reject that bidder shares are systematically overpriced in all-stock bids, and suggest that bidder synergy gains are much larger than previously thought.
Synergy Motivation and Target Ownership Structure: Effects on Takeover Performance
In this research, we find statistically significant positive abnormal returns around takeover announce ments for combined firms. The cumulative average abnormal returns for combined firms are 4.62% over the event-window ( -20, +20), which suggests that takeovers create shareholder wealth ( synergy motive). In addition, we examine the impact of ownership structure in target firms on the abnormal returns t o shareholders of combined firms. We show that manag ement shareholdings have a significant negative impact on the returns to shareholders of combined firms (ent renchment). Institutional shareholdings and outside block holdi ngs have a significantly positive influence on the abnormal returns to shareholder of combined firms. These results sugges t that monitoring by large institutional shareholde rs and other outside shareholders increase the abnormal returns to shareholders of the combined firm. Furthermore, competition between bidders increases the abnormal returns to s hareholde...
Market perception of synergies in related acquisitions
2009
Abstract: This research examines whether market participants are able to identify post-acquisition operating synergies at the time of the acquisition announcement. We examine the abnormal returns of the bidding firm and its major rival and relate equity gains or losses during acquisition announcements to subsequent post-acquisition operating performance.
Types of synergy and economic value: The impact of acquisitions on merging and rival firms
Strategic Management Journal, 1986
c Summary Acquisitions, in general, have been demonstrated to create economic value. The intuitive reason underlying this value creation stems either from an ability to reduce costs of the combined entity, an ability to charge higher prices, or both. Current research in the area attributes these abilities to an opportunity to utilize a specialized resource. Our focus in this study is to compare three broad classes of resources that contribute to the creation of value. Following the conventional wisdom, these resources are classified as cost of capital related (resulting in financial synergy), cost of production related (resulting in operational synergy), and price related (resulting in collusive synergy). Given the limitations of our sample and research design, we find that collusive synergy is, on average, associated with the highest value. Further, the resources behind financial synergy tend to create more value than the resources behind operational synergy.
Do Mergers Create or Destroy Value? Evidence from Unsuccessful Mergers
SSRN Electronic Journal, 2000
In this study, we examine unsuccessful takeover attempts for new evidence on whether mergers create or destroy value for acquirers and targets. We contribute to the literature in three important areas. First, we contribute to the literature on signaling by investigating whether a takeover attempt signals investors about the quality of firm management as well as the quality of the specific firm investment under consideration. We find that bid announcement returns are partially, but not completely, reversed by termination announcement returns, evidence that the merger proposal itself contains information about the value of the bidding firm. Second, we contribute to the literature on the value of diversification by examining how merger bids and terminations affect the relative values of bidders attempting diversifying and focusing takeovers.
Quantitative Finance Letters, 2016
We propose a structural event study methodology, which explicitly models the interaction of two merger and acquisition (M&A) effects: synergy (total value) and dominance (bargaining power). This interaction simultaneously determines the acquirer's and the target's observed abnormal returns around the transaction announcement. Accordingly, we propose a structural estimation approach of which estimates suggest that acquirers get twice as much gains as targets. The structural parameters are uniquely identified with the reduced forms' coefficients. We use this feature to validate our structural approach. Moreover, the reduced forms' estimates are consistent with the M&A literature. However, the interpretation/intuition from the structural estimates offers a new perspective on how acquirers and targets share synergies. More generally, the structural approach allows testing theories and hypotheses related to M&As under an empirical framework that captures the interdependency of the parties' abnormal returns. The efficiency of the empirical procedure is higher than the efficiency of methods that overlook this interdependency.
Identifying the Nature and Value of Expected Merger Synergies
SSRN Electronic Journal
Using a large sample of post-2001 mergers, we show that three components of targets' intellectual property account for 25% to 33% of merger value creation. In particular, we show that R&D, Technology, and Trademarks generate greater synergies than acquired net tangible assets and goodwill. We also find that acquiring targets' customer bases is associated with lower synergies and that acquirers overpay for goodwill. Our findings are robust to using conventional and novel wealth effect estimates. They suggest that information about the economic value of acquired assets drawn from price allocation disclosures enables researchers to simultaneously study multiple sources of synergy.
Organizational Restructuring and Realization of Synergy from Corporate Acquisitions
2012
Studies on post-acquisition or integration stage of acquisition process have revealed that increase in number of acquisitions results in diminishing contribution to the performance of a firm and increasing inefficiency of the system, which, at times, calls for organizational restructuring. Although disruptive in the short-run, organizational restructuring has been effective in realization of synergy benefits from acquisitions. The post-acquisition studies mostly assume strategic fit, the focus of pre-acquisition activities, to which contradictory evidence exists. Incorporating pre-acquisition or selection stage activities in post-acquisition activities may provide a better understanding of how corporation can realize synergy benefits from acquisitions.