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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.

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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.

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Table 3

Combined returns during 1973-1998: 1.8%

Target returns during 1973-1998:16.0%

Bidder returns during 1973-1998: -0.7%

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Table 4Announcement 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%

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Table 6Long-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.

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Firm Size And The Gains From Acquisitions

BySara Moeller, Frederik Schlingemann, Rene Stulz

12,023 acquisitions by publicly listed U.S. firms during 1980-2001.

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Table 4Acquiring Company’s Announcement Period Abnormal Returns

Stock Cash AllPublicly-held Targets

(2,642 acquisitions) -2.02% .36% -1.02%(-$183M) (-$33M) (-$128M)

Small Acquirers -.75% 2.84% .92%

Large Acquirers -2.45% -.42% -1.70%

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Table 4Acquiring Company’s Announcement Period Abnormal Returns

Stock Cash AllPrivately-held Targets

(5,583 acquisitions) 1.49% 1.21%1.50%

(-$9M) ($1M) (-$3M)

Small Acquirers 2.70% 1.52%2.14%

Large Acquirers .50% .81% .70%

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Table 4Acquiring Company’s Announcement Period Abnormal Returns

Stock Cash AllFull Sample

(12,023 acquisitions) .15% 1.38%1.10%

(-$80M) ($5M) (-$25M)

Small Acquirers 2.03% 2.17%2.32%

Large Acquirers -.96% .69% .08%

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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.

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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.

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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.