Source: Author’s analysis.
FINDINGS BASED ON THE ANALYSIS OF MARKET-BASED RETURNS TO SHAREHOLDERS
Event studies yield insights about market-based returns to target firm shareholders, buyers, and a combination of both.
Returns to Target Firms
Target firm shareholders enjoy returns that are significantly and materially positive. Exhibit 3.3 summarizes the findings of 25 studies, which reveal returns that are material and significant, despite variations in time period, type of deal (merger vs. tender offer), and observation period. In short, the M&A transaction delivers a premium return to target firm shareholders.
Returns to Buyer Firms
The pattern of findings about market-based returns to buyer firms’ shareholders is more problematical.
There are 22 studies that report negative returns with 14 of the 22 significantly negative (see Exhibit 3.4). The significantly negative returns vary between 1 and 4 percent.
There are 32 studies (see Exhibit 3.5) that report positive returns—23 of these report significantly positive returns.
The studies of returns to buyer firm shareholders around the time of announcement are distributed with a slight positive bias: 26 percent (14) show value destruction (significantly negative returns); 31 percent (17) show value conservation (insignificantly different from zero): and 43 percent (23) show value creation (positively significant returns).EXHIBIT 3.3 Summary of Shareholder Return Studies for M&A: Returns to the Target Firm ShareholdersStudyCumulative Abnormal Returns (% or avg$/acq)Sample SizeSample PeriodEvent Window (Days)% Positive ReturnsNotesLangetieg (1978)+10.63%*1491929–1969(–120,0)71.6%Mergers; uses effective date as event date.Bradley, Desai, Kim (1988)+31.77%*2361963–1984(–5,5)95%Tender offers only; subperiod data available for 7/63–6/68, 7/68–12/80, 1/81–12/84; acquirer returns have increased from +19% to +35% over time.Dennis, McConnell (1986)+8.56%*761962–1980(–1,0)70%Jarrell, Poulsen (1989)+28.99%*5261963–1986(–20,10)N/ATender offers only.Lang, Stulz, Walkling (1989)+40.3%*871968–1986(–5,5)N/ATender offers only.Franks, Harris, Titman (1991)+28.04%*3991975–1984(–5,5)N/AMergers and tenders offers; segment data available on means of payment and competition.Servaes (1991)+23.64%*7041972–1987(–1,close)N/AMergers and tender offers; segment data by payment method.Bannerjee, Owers (1992)+$137.1 MM*331978–1987(–1,0)85%White knight bids.Healy, Palepu, Ruback (1992)+45.6%*501979–1984(–5,5)N/ALargest U.S. mergers during period.Kaplan, Weisbach (1992)+26.9%*2091971–1982(–5,5)94.7%Mergers and tender offers.Berkovitch, Narayanan (1993)+$130.1 MM*3301963–1988(–5,5)95.8%Tender offers.Smith, Kim (1994)+30.19%* +15.84%*1771980–1986(–5,5) (–1,0)96.0% 91.3%Successful and unsuccessful tender offers.Schwert (1996)+26.3%*6661975–1991(–42,126)N/AMergers, tenders offers; segment data available for various transaction attributes.Loughran, Vijh (1997)+29.6%* merger +126.9%* tender +47.9* combined419 1351970–1989(–2,1,250)N/AFive-year postacquisition returns; segment data also available on form of payment.Maquieira, Megginson and Nail (1998)+41.65%* conglomerate +38.08% * nonconglomerate47 551963–1996(–60,60)61.8% 83.0%Study of returns for conglomerate and nonconglomerate stock-for-stock mergers.Eckbo, Thorburn (2000)+7.45%*3321964–1983–40,0)N/ACanadian targets only.Leeth, Borg (2000)+13.27%*721919–1930–40,0)N/AMulherin, Boone (2000)+21.2%*3761990–1999(–1,+1)N/AMulherin (2000) DeLong (2001)+10.14%* +16.61%*202 2801962–1997 1988–1995(–1,0) (–10,1)76% 88.6%A sample of incomplete acquisitions. Studied deals where at least one party is a bank.Houston et al. (2001)+15.58% * (1985–90) +24.60%* (1991–96) +20.80%* (all)27 37 641985–1996(–4,1)N/ADeals in which both parties are banks.Beitel et al. (2002)+10.48%*981985–2000(–1,0)53%Sample of European bank mergers.Kuipers, Miller, Patel (2003)+23.07%*1811982–1991(–1,0)N/AU.S. targets of foreign acquirers.Renneboog, Goergen (2003)+9.01%*1361993–2000(–1,0)N/AEuropean transactions.Billett, King, Mauer (2003)+22.15%*2651979–1997(–1,0 month)N/AUnless otherwise noted, event date is announcement date of merger/bid.*Significant at the 0.95 confidence level or better.
