Applied Mergers and Acquisitions. Robert F. Bruner

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–2.90% whole sample –13.70% *after l970 121 75 1969–1974 (0,365) N/A Mergers only. Event date is date of approval. –7.70% smaller bidders 59 Agrawal, Jaffe, Mandelker (1992) –10.26%* 765 1955–1987 (0,1,250) 43.97% Mergers only; five-year postmerger performance; tender offer postacquisition performance is not significantly different from zero. Loderer, Martin (1992) +1.5% 1,298 1966–1986 (0,1,250) N/A Mergers and tender offers; five-year postacquisition performance. Gregory (1997) –12% to –18%* 452 1984–1992 (0,500) 31% to 37% Uses six variations of the event study methodology; U.K. mergers and tender offers; two-year postacquisition performance. Loughran, Vijh (1997) –14.2% merger +61.3%* tender 434 100 1970–1989 (1,1,250) N/A Five-year postacquisition returns; segment data also available on form of payment. –0.1% combined Rau, Vermaelen (1998) –4%* mergers +9%* tender offers 3,968 348 1980–1991 (0,36 months) N/A Three-year postacquisition returns, with insights into value and glamour investing strategies. Louis (undated) –7.3%* successful –18.4%* unsuccessful 1,297 308 1981–1998 (0,3 years) N/A Comparison of successful and unsuccessful acquirers. Pettit (2000) –25.41%* 216 1977–1993 (0,3 years) N/A Tender offers, French sample. Ferris and Park (2001) –19.80%* 56 1990–1993 (l,+60 months) N/A Sample of mergers in the telecommunications industry. Kohers, Kohers (2001) –37.39% 304 1984–1995 (1,1,250) N/A Sample of technology mergers. Moeller, Schlingemann, Stulz (2003) –4.1% 12,023 1980–2001 (0,36 months) N/A

      Unless otherwise noted, event date is announcement date of merger/bid.

*Significant at the 0.95 confidence level or better.

FINDINGS BASED ON THE ANALYSIS OF REPORTED FINANCIAL PERFORMANCE

A second important stream of research on M&A returns is found in 15 studies of profit margins, growth rates, and returns on assets, capital, and equity, summarized in Exhibit 3.8. Scanning the column of results yields the observation that two studies report significantly negative performance postacquisition, four report significantly positive performance, and the rest are in the nonsignificant middle ground. Four studies illuminate interesting aspects of postacquisition performance.

Geoffrey Meeks (1977) explored the gains from merger for a sample of transactions in the United Kingdom between 1964 and 1971. This study draws upon a relatively large sample (233 observations), and tests the change in profitability following the merger. Meeks looks at the change in return on assets⁸ (ROA) compared to the change in ROA for the buyer’s industry. His chief finding is excerpted in Exhibit 3.9. Meeks’ findings reveal a decline in ROA for acquirers following the transaction, with performance reaching the nadir five years after. For nearly two-thirds of acquirers, performance is below the standard of the industry. He concludes that the mergers in his sample suffered a “mild decline in profitability” (page 25).

Mueller (1980) edited a collection of studies of M&A profitability across seven nations (Belgium, Germany, France, Netherlands, Sweden, United Kingdom, and United States). All the studies applied standard tests and data criteria and therefore afford an unusually rich cross-border comparison of results across parts of Europe and the United States. The research tested theories about changes in size, risk, leverage, and profitability. Profitability was measured three ways: (1) profit divided by equity; (2) profit divided by assets, and (3) profit divided by sales. The changes in profitability for an acquirer (measured as the difference between the postacquisition performance and the average profitability for five years before the transaction) were compared to similar measures for two benchmark groups: firms matched

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