New Evidence and Perspectives on Mergers
By
Gregor Andrade, Mark Mitchell, and Erik Stafford
Table 1: Compared to the 70s and 80s, during the 90s:
• Less cash offers.
• More stock offers.
• Less hostile bids.
• More acquisitions in same industry.
1
Table 2: Mergers come in waves, but each wave is different in
terms of industry composition.
•
•
•
Industry-level shocks:
Technological innovations which can create
excess capacity and need for consolidation.
Supply shocks such as oil prices.
Deregulation.
Deregulation during the 90s: Banks and thrifts, Utilities,
Telecommunications.
2
Table 3
Combined returns during 1973-1998:
1.8%
Target returns during 1973-1998:
16.0%
Bidder returns during 1973-1998:
-0.7%
3
Table 4
Announcement Period Abnormal Returns during 1973-1998
Stock
No Stock
Large Target
Combined
0.6%
3.6%
3.0%
Target
13.0%
20.1%
13.5%
Acquirer
-1.5%
0.4%
-1.5%
4
Table 6
Long-Term Abnormal Returns
Signal to noise ratio is very large when considering long-term
(more than a few months).
Difficult to precisely measure abnormal returns over the long
horizon: Pages 13-14.
5
Firm Size And The Gains From Acquisitions
By
Sara Moeller, Frederik Schlingemann, Rene Stulz
12,023 acquisitions by publicly listed U.S. firms
during 1980-2001.
6
Table 4
Acquiring Company’s Announcement Period Abnormal Returns
Stock
Cash
All
-2.02%
.36%
-1.02%
(-$183M)
(-$33M)
(-$128M)
Small Acquirers
-.75%
2.84%
.92%
Large Acquirers
-2.45%
-.42%
-1.70%
Publicly-held Targets
(2,642 acquisitions)
7
Table 4
Acquiring Company’s Announcement Period Abnormal Returns
Stock
Cash
All
1.49%
1.21%
1.50%
(-$9M)
($1M)
(-$3M)
Small Acquirers
2.70%
1.52%
2.14%
Large Acquirers
.50%
.81%
.70%
Privately-held Targets
(5,583 acquisitions)
8
Table 4
Acquiring Company’s Announcement Period Abnormal Returns
Stock
Cash
All
.15%
1.38%
1.10%
(-$80M)
($5M)
(-$25M)
Small Acquirers
2.03%
2.17%
2.32%
Large Acquirers
-.96%
.69%
.08%
Full Sample
(12,023 acquisitions)
9
Why are returns to U.S. acquirers NEGATIVE (from
acquiring public U.S. targets)?
•Roll’s Hubris Hypothesis.
•If acquisition is financed with stock: Negative signal.
•No attractive internal investment opportunities: Negative
signal.
•Acquiring management’s empire-building tendencies.
10
Why are returns to LARGE U.S. acquirers particularly
NEGATIVE (from acquiring public U.S. targets)?
•Roll’s Hubris Hypothesis: Large firm managers more
prone to hubris given their past successes.
•Large firms may have more resources for paying.
•No attractive internal investment opportunities: Large
firms more likely to have exhausted growth opportunities
since further along their life cycle.
•Incentives of smaller firms’ managers better aligned
perhaps through stock ownership.
11
Why are returns to U.S. acquirers more NEGATIVE from
acquiring public U.S. targets compared to private
targets?
•Liquidity constraints for private company owners.
•Greater bargaining ability of public shareholders.
12