Lecture 9: Are Acquisitions Successful?

Question 1

What does US short term evidence find (Cai and Vijh, 2007)?

Answer 1

• targets make substantial gains
• acquirers make nearly 0/negative gains
• in hostile takeovers both parties make more than friendly

Question 2

What does US long term evidence show (Mitchell and Stafford,2000; Bouwman, Fuller and Nain, 2009)?

Answer 2

• acquirers suffer significant wealth losses
• hostile adds more value
• acquirer loses out in the bargaining

Question 3

What does UK short term evidence show (Goergen and Renneboog, 2004)?

Answer 3

• Target shareholders make substantial gains (30%)

- Acquirers suffer 0/significantly negative gains

Question 4

What does UK long term evidence show (Antoniou, Pentnezas, Zhao, 2007)?

Answer 4

-acquirer gains experience losses rather than gains

Question 5

What does European short term evidence show (limited)

Answer 5

• target shareholders gain substantially
• acquirers just break even
• targets gain more in tender offers than in mergers

Question 6

What does US evidence show happens to operating performance? (Bouwman, Fuller and Nairn, 2009)?

Answer 6

• assessment sensitive to accounting measure and benchmark
• profit measures, long run performance decline
• cash flow, no significant improvement
• average, acquirers perform as well as their industry counterparts

Question 7

What does European evidence show happens to operating performance (Martynova, Renneboog, 2007)?

Answer 7

-merging firms underperform marginally with no significant outperformance

Question 8

What does UK evidence show what happens to operating performance (Cosh, guest, Hughs, 2006)?

Answer 8

• profitability increases not significant

- cash flow performance improves

Question 9

What effect does corporate governance law have on earnings management?

Answer 9

Reduces it

Question 10

What is the evidence in earnings management?

Answer 10

• acquirers in stock transactions manage earnings upwards year prior
• target increased earnings management upwards year prior irrespective of stock or cash transaction

Question 11

What are the most common reasons for M&A failure?

Answer 11

• cultural clash
• little or no planning for post acquisition
• lack of industry
• poor management
• little experience in acquisitions

Question 12

What are the most common reasons for M&A success?

Answer 12

• detailed plan post acquisition
• clear purpose
• cultural fit
• high degree of management cooperation
• in depth knowledge of target and industry

Question 13

What effect do M&A have on the economy?

Answer 13

• neutral

- efficiency gains neutralised by monopolisation

Question 14

What effect do M&A have on the shareholders?

Answer 14

• profitable to the targets shareholders

- unprofitable to the acquirers