Do mergers create value for acquirers? - Evidence from U.S. merger contests

Abstract

In this thesis, I examine whether carrying out a merger creates or destroys acquirer value in the long-term. The results of prior literature regarding long-term merger impact on the acquirer are inconclusive and potential to causal identification issues. In a recent working paper, Malmendier, Moretti, and Peters (2014) offer an improvement to the previously employed control groups, whose returns are used as a proxy for the returns of the acquirer, in the absence of the merger. Malmendier, Moretti, and Peters (2014) investigate contested mergers and suggest that, with respect to stock returns, acquirers are likely to be more similar to unsuccessful bidders than to the previously used benchmarks.

The results of Malmendier, Moretti, and Peters (2014) indicate that carrying out a merger leads to a severe value disruption in terms of long-term stock performance. In this thesis, I test and critically assess the validity of their results. Thus, this thesis provides an essential robustness check for the authors' results, but also discusses the possible issues related to the novel approach employed to detect long-term abnormal returns. In assessing the value impact, I use both the event-time and calendar-time methodologies, and the improved benchmarks, unsuccessful bidders.

The sample used in this thesis covers a more recent and longer period of time than that of Malmendier, Moretti, and Peters (2014), and it is also larger in size indicating a better reliability. The data set consists of 93 U.S. merger contests all comprising one acquirer and one unsuccessful bidder. The mergers are completed during February 1985 and March 2012. To be included in the sample, the bids by the acquirer and the unsuccessful bidder have to be overlapping and the companies have to have ex-ante an equal chance of winning the merger contest.

The data on bids announcements is extracted from the Securities Data Company's (SDC) U.S. Mergers and Acquisitions Database. The stock price and accounting data is obtained from the Center for Research in Securities Prices (CRSP) and COMPUSTAT, respectively. Furthermore, I use Kenneth French Data Library to obtain average industry returns.

My results build upon a large body of mergers and acquisition literature and they also have real life implications. Based on my results, I do not find evidence of consistent post-merger acquirer value disruption. However, no long-term value creation is detected either. My results are robust across the transaction characteristics, measurable omitted variables, which could potentially bias the estimates.