Do acquisitions by electric utility companies create value? Evidence from deregulated markets (original) (raw)
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MERGER AND ACQUISITION ON ELECTRICITY INDUSTRY OUTSIDE INDIA
GAP iNTERDISCIPLINARITIES, 2020
The procedure of mergers and acquisitions has increased significant significance in the present corporate world. This procedure is broadly utilized for rebuilding the business associations.Many electric utilities, as a response to the deregulation of the electric power industry, adopted a strategy of acquiring other electric or gas utilities. We examine whether these merger and acquisition strategies create value for the utility shareholders and whether the strategies result in superior post-merger operating and stock-price performance relative to utilities that did not grow through acquisitions. We find little evidence that the mergers and acquisitions created long-term value for a fully diversified investor. Furthermore, the stock price and operating performance of the acquirers underperformed the stock price and operating performance of a control portfolio of utilities that did not engage in merger activity. It is fact that mergers and acquisitions (M&A) have been a critical component of corporate technique everywhere throughout the globe for a very long while, examines on M&As has not had the capacity to give decisive proof on whether they improve productivity or crush riches. There is along these lines a continuous worldwide discussion on the impacts of M&As on firms.
Between 1990 and 2002 a wave of takeovers was observed in the North American and European energy utilities market. We analyze the impact of these takeovers on market power, studying 70 takeovers of US-American and 69 takeovers of German energy utilities by applying event study methodology. Stock price reactions of acquiring and target firms as well as of their competitors are used as an indicator for market power. While we do not find any significant results pointing in this direction for transactions in the US, our findings clearly indicate that the potential to increase market power is indeed an important motive for takeovers within the German energy utilities market.
Motives of mergers and acquisitions in the European public utilities
International Journal of Public Sector Management
Purpose The purpose of this paper is to investigate the motivation and post-merger operating performance (OP) of European utility sectors following mergers and acquisitions (M&A). Design/methodology/approach Motives behind M&A are examined by looking into the relationships between total gains, target gains and acquirer gains. Post-merger OP is measured by comparing the sample of European utilities with a matched portfolio based on size and market to book ratio with respect to five accounting indicators: growth in turnover, growth in earnings before interest and tax, return on assets, net profit margin and growth in fixed assets. Findings Synergy is the primary motive for M&A in the European utility firms. This study also found that post-merger OP is negative and significant across all the five accounting indicators matched by size, and market to book ratio suggesting that utility mergers underperform in the long term. The findings suggest that gains accruing to utilities involved in...
Journal of Business & Economics Research (JBER), 2011
We study post-acquisition performance of US public utilities that acquired other US exchange listed firms during 1996?2002. We find that acquirer shareholders do not gain any abnormal returns from the acquisition over the two years following the acquisition and there are no unexpected gains in the underlying operating performance of the acquirers. We also find that while stock acquirers show a decrease in post-acquisition performance, their CEO salary increases relative to the industry. This suggests that method of payment may be an important factor in discerning the motivation for an acquisition. Lack of clarity regarding effects of a complex process like an acquisition, for shareholders and perhaps the even the management, combined with potential increase in prestige and salary for the management, may be the motivation for M&A activity in stock mergers. Cash acquirers may be more careful and consequently do not show subsequent underperformance.