The Post-Merger Performance of Acquiring Firms: A Re-Examination of an Anomaly

Agrawal, Anup; Jaffe, Jeffrey F.; Mandelker, Gershon

doi:10.2307/2328956

Cited by 355 publications

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“…Following the merger, HPQ P/E has increased significantly after 2002, although it experienced a drop in the prior year. These findings are consistent with earlier findings from [19]- [21] who generally support the acquiring firms do not benefit from the post merger earnings and market share price.…”

Section: Comparative Analysis Of Eps and P/esupporting

confidence: 92%

Do Shareholders Benefit From a Merger? The Case of Compaq and HP Merger

Gurrib¹

2015

IJTEF

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Using a modified two factor model, market capitalization and book to market value were found not to add significant value to the shareholders' post-merger returns. Earnings per share (EPS) and the price earnings (P/E) ratio dropped in the year following the merger between the two entities, before eventually picking up in later years. While higher post-merger EPS suggest shareholders from the target firm tend to have benefited more than shareholders from the acquiring firm, the post-merger P/E tend to be higher for shareholders from the acquiring company.Index Terms-Book to market value, market capitalization, pre and post merger. I. INTRODUCTIONCorporate acquisitions are considered as a critical component of corporate strategy, management dealings, and corporate finance. It involves buying, selling, and/or dealing with a combination of different or similar companies. While the concept of mergers and acquisitions is usually dealt within the same manner, there is a distinction to be made. In acquisitions, one company takes over the other company or some part of its operations, while in mergers, there is an equal distribution of rights between the two companies. More importantly, there are some critical aspects which make corporate acquisitions important issues namely raising capital, strategic planning, communication, decision making and crisis management. Corporate expansion through acquisitions increases both the assets and liabilities of the company, with a greater inclination towards increasing the assets base rather than the liability side. This makes it easier for the company to raise money for future investments or future development. In regards to strategic planning, acquiring a business also includes acquiring skills and planning. The acquisition embraces the good skills of both companies, which helps with developing a better planning strategy. Communication wise, the importance of acquisition lays in the strong communication base and communication technologies. Acquiring a company may add to the strength of the communication skills for the parent company, which in turn helps in several other entrepreneurial activities for the Manuscript received September 7, 2014; revised January 8, 2015. Ikhlaas Gurrib is with Canadian University of Dubai, Sheikh Zayed Road, PO Box 117781, Dubai, United Arab Emirates (tel.: 971-4709-6140; e-mail: ikhlaas@cud.ac.ae).company. Further, it provides a framework towards proper decision making in terms of taking up another company, or ending up with mergers. Even after the acquisitions, it is important to have fair decisions processes among the people to ensure the existence of a proper network for the future development and growth of the company. Finally, but not least, most companies experience some sort of crisis at some point in time during the acquisition. To overcome this crisis, the company needs to design proper crisis management networks, which will benefit the shareholders and help to create a niche for the company.To understand the significance of corporate acquisit...

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Section: Comparative Analysis Of Eps and P/esupporting

confidence: 92%

Do Shareholders Benefit From a Merger? The Case of Compaq and HP Merger

Gurrib¹

2015

IJTEF

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“…There have been cases in which the shareholders of acquiring firms systematically lose value in a 3-to 5-year period after the acquisition (Agrawal et al, 1992;Walker and Hsu, 2007) 4) If an analysis of the performance of mergers and acquisitions is supported by the study of the short-term returns, this means considering that the investors fully understand the determining factors of a successful acquisition and have sufficient information to quite accurately predict how the process of integration is going to affect the future cash flows of the acquiring firm. This assumption is not likely to occur (Sorescu, et al, 2007).…”

Section: Methodology To Be Appliedmentioning

confidence: 99%

“…Short-term approaches could only reflects ephimeral and speculative movements (Akhigbe and Madura, 1999) or could not capture all the efects in the stock markets, especially when defining the short timeframe of analysis (Agrawal et al, 1992).…”

Section: Introductionmentioning

confidence: 99%

Language as a key factor of long-term value creation in mergers and acquisitions in the telecommunications sector

Navío-Marco¹,

García²,

Matilla-García

et al. 2016

Telecommunications Policy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may LANGUAGE AS KEY FACTOR OF LONG-TERM VALUE CREATION IN MERGERS AND ACQUISITIONS IN THE TELECOMMUNICATIONS SECTOR ABSTRACTThis article analyzes long-term value creation or destruction in mergers and acquisitions in the telecommunications sector. After characterizing the market targeted by the analysis (telecommunications) and discussing and selecting the most suitable long-term methodology, we will make an econometric analysis of telecommunications M&A in the period from 1995 to 2010. The research will focus on telephone companies or operators as leading players in the sector. Based on this econometric analysis, we clearly found evidence of value destruction (2000-2010) using different methodologies, and value creation in the M&A using same language in the involved companies. According with the type of operations, some political recommendations can be established. This is the first econometric study devoted to long-term value creation in telecommunications after the liberalization of the telecom market.

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“…However, research on takeovers, typically relying on data from earlier waves, has pointed out that many acquisitions are often unable to meet the great expectations expressed at their notification. For example, Agrawal et al (1992) report that investors in US acquiring companies in the period 1955-1987 endured a significant average loss of 10% in shareholder value in the five years following the deal. These results have been confirmed by later studies examining M&As in the USA as well as in the UK (e.g., Gregory, 1997;Bouwman et al, 2009).…”

Section: Introductionmentioning

confidence: 99%

Sources of Synergy Realization in Mergers and Acquisitions: Empirical Evidence from Non-Serial Acquirers in Europe

Huyghebaert¹,

Luypaert²

2013

International Journal of Financial Research

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We empirically investigate the sources, magnitude, and timing of synergy realization for 293 M&As by non-serial listed acquirers in Europe during [1997][1998][1999][2000][2001][2002][2003][2004][2005]. In contrast to much of the existing literature, we find that the shareholders of non-serial acquirers gain significantly upon deal announcement. Next, we unravel the various sources of M&A value creation, in particular operating synergies resulting either from revenue enhancement or from savings on operating costs and investments, and financial synergies. Compared to its non-combining industry peers, the median combined sample firm reports a 4.92% larger sales growth rate by the third post-deal year. Operating costs relative to sales are reduced by an extra 1.53% over this same window. In leverage-increasing acquisitions, the median combined firm realizes a persistent 6.09% rise in its long-term debt ratio. Finally, our multivariate regression results point out that non-serial acquirers with a larger market-to-book ratio achieve more extensive operating synergies.

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The Post-Merger Performance of Acquiring Firms: A Re-Examination of an Anomaly

Cited by 355 publications

References 0 publications

Do Shareholders Benefit From a Merger? The Case of Compaq and HP Merger

Do Shareholders Benefit From a Merger? The Case of Compaq and HP Merger

Language as a key factor of long-term value creation in mergers and acquisitions in the telecommunications sector

Sources of Synergy Realization in Mergers and Acquisitions: Empirical Evidence from Non-Serial Acquirers in Europe

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