The Dynamics within Merger Waves - Evidence from Industry Merger Waves of the 1990s

Floegel, Volker; Johanning, Lutz; Gebken, Timo

doi:10.2139/ssrn.669525

Cited by 8 publications

(4 citation statements)

References 32 publications

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“…This is due to the increased merger activity levels associated with the pre‐crest period enhancing the probability of rivals being a future target, while the lowered merger activity levels characteristic of the post‐crest period reduce the probability of rivals being a future target. In support of such conjecture, Floegel et al. (2005) present evidence that rivals' pre‐crest abnormal returns are positive (0.31 per cent) and post‐crest abnormal returns are negative (−0.12 per cent) on average; but also find acquirers' abnormal returns to be far more sensitive to the wave (1.55 and −1.11 per cent in the respective pre‐crest and post‐crest periods).…”

Section: Rival Effects and Merger Wavesmentioning

confidence: 99%

The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

Clougherty

Duso

2009

J Management Studies

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It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, 'future acquisition probability' does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.Keywords: Rivals, Mergers, Acquisitions, Event-Study. * Corresponding author. We wish to thank anonymous referees, Laurence Capron, Sayan Chatterjee, Wilbur Chung, Andrew Delios, Thomas Hutzschenreuter, Aswin van Oijen, and Jo Seldeslachts for helpful comments, discussions and support; participants at the Academy of Management, ACCS and SMS conferences for helpful comments; Claudia Baldermann, Jennifer Rontganger, and Constanze Quade for excellent research assistance. Tomaso Duso gratefully acknowledges financial support from the Deutsche Forschungsgemeinschaft through SFB/TR 15.

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Section: Rival Effects and Merger Wavesmentioning

confidence: 99%

The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

Clougherty

Duso

2009

J Management Studies

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“…Since the portion of the cost of losing that gets paid to target firms will increase as fewer substitutes remain, later stages of a merger wave or high prior acquisition activity in the industry should translate into lower returns for both the late acquirers and the rivals. In a study of 18 industry merger waves, Floegel, Gebken, and Johanning (2005) find that returns to both bidders and their rivals decrease toward the later stages of the wave. Similarly, Akdogu (2009) finds that in the recent telecom wave, both bidders and their competitors earn significantly worse returns during the later stages of the wave, particularly at the announcement of nonhorizontal acquisitions.…”

Section: Empirical Implicationsmentioning

confidence: 99%

Value-Maximizing Managers, Value-Increasing Mergers, and Overbidding

Akdoğu

2010

J. Financ. Quant. Anal.

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Some acquisitions can be viewed as the quickest means to obtain a scarce resource required for restructuring in response to an economic shock. Such acquisitions can give the acquirer a competitive edge and hurt its competitors. In this paper, I first show that if a firm will be adversely affected by a competitor’s acquisition, then it can rationally “overpay” for the target to avoid this outcome within a value-maximizing framework due to industry equilibrium effects. Next, I show that depending on the level of anticipation by the market, the magnitude of the cost of losing, and the competition between bidders, an acquirer can earn negative payoffs at the announcement of such an acquisition. Even though the merger is the best decision given the circumstances, negative returns incorporate the understanding that the target is a necessary resource to survive in this changing environment, losing it to a rival is costly, and there is a positive probability that the bidder may not win or win by paying more than the synergy value of the target. Finally, I extend the model to include 2 targets that become available sequentially to multiple bidders and show that when there are alternatives available for the target’s resources, overbidding subsides.

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“…From the viewpoint of the public bidder, a private target requires a more extensive search than public targets, and therefore, it is ceteris paribus less probable that a public firm manager would attempt and succeed in taking advantage of public targets. Floegel, Gebken & Johanning 2005 provides US evidence that private bidders are purchased relatively later in industry merger waves.…”

Section: Merger Waves Of Privately Held Firmsmentioning

confidence: 99%

What Drives Private and Public Merger Waves in Europe

2009

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Abstract:What drives merger waves? Harford 2005 argues that mergers are an efficient response to economic shocks to an industry, whereas Rhodes-Kropf, Robinson & Viswanathan 2005 argues that merger waves are driven by overvaluation of the acquiring firm, and to a lesser extent, the target firm. Both papers are based on empirical analyses of listed US firms. This paper presents additional evidence of merger waves in the European Union (EU). The use of European data allows a more detailed analysis, since firm level data is available for both listed as well as private transactions. This analysis reveals significant differences between driving forces for listed firms and for private firms. Public or listed firm mergers and acquisitions are primarily driven by overvaluation or behavioural factors, whereas private transactions are driven by economic factors.1

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The Dynamics within Merger Waves - Evidence from Industry Merger Waves of the 1990s

Cited by 8 publications

References 32 publications

The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

Value-Maximizing Managers, Value-Increasing Mergers, and Overbidding

What Drives Private and Public Merger Waves in Europe

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