Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave / Sara B. Moeller, Frederik P. Schlingemann, Rene M. Stulz.

Format:

Book

Author/Creator:

Moeller, Sara B.

Contributor:

National Bureau of Economic Research.

Schlingemann, Frederik P.

Stulz, Rene M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10200.

NBER working paper series no. w10200

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

Acquiring-firm shareholders lost 12 cents at the announcement of acquisitions for every dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. Though the announcement losses to acquiring-firm shareholders in the 1980s are more than offset by gains to acquired-firm shareholders, the losses of bidders exceed the gains of targets from 1998 through 2001 by $134 billion. The 1998-2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisition announcements by firms with extremely high valuations. Without these announcements, the wealth of acquiring-firm shareholders would have increased. The large losses are consistent with the existence of negative synergies from the acquisitions, but the size of the losses in relation to the consideration paid for the acquisitions is large enough that part of the losses most likely results from investors reassessing the standalone value of the bidders. Firms that announce acquisitions with large dollar losses perform poorly afterwards.

Notes:

Print version record

January 2004.