Global Mergers and Acquisitions-An Event Study Analysis Ontata Chemicals and British Salt.
This study presents the effect of Global Merger on stock prices of Tata Chemicals. We examine shareholder wealth gains of Tata Chemicals that acquired British Salt in Dec 2010. This study analyses global merger by Tata Chemicals in UK and the returns to shareholders as a result of the merger, using the event study methodology (Brown and Warner, 1980, 1985; and MacKinlay, 1997).We find that foreign acquirers experience positive and significant abnormal returns of nearly two percent over days (- 10,+ 10) when they acquire target in the UK.
To capture the impact on stock prices as a result of global M&A using the event study methodology. Using the single-factor model the study finds that the average cumulative abnormal return (CAR) of the Tata Chemicals is positive and substantial. These results are statistically significant also. Thus, the bidder firm got significant positive abnormal returns. The single-factor model finds that the combined CAR is positive, significant and substantial. The bidder firm created a wealth of Rs 33.73 million in a one day window (single-factor model) as a result of the merger. The merger announcements of Tata Chemicals have positive and significant shareholder wealth effect both for bidder and target firm.
The aim is to understand the shareholder wealth effects of merger.
*Using the single-factor model, the study finds that the average cumulative abnormal return (CAR) of the Tata Chemicals is positive and substantial. These results are also statistically significant. Thus, the bidder firm got significant positive abnormal returns.
*The single-factor model finds that the combined CAR for the target firm is positive, significant, and substantial.
The bidder firm created a wealth of Rs 33.73 million in a one-day window (single factor model) as a result of the merger.
- Anand Manoj and Singh Jagandeep (2008) ‘Impact of Merger Announcements on Shareholders’ Wealth Evidence from Indian Private Sector’, Volume 33 Pages: 360-383.
- Appelbaum, S. H. Gandell, Yortis, Proper and Jobin (2000) ‘Anatomy of a Merger:Behaviour of Organizational Factors and Processes throughout the Pre-during-poststages’(Part 1) Pages: 649-662.
- Aw, M., and Chatterjee, R. (2004). The performance of UK firms acquiring large cross-border and domestic takeover targets. Applied Financial Economics, 14, 337–49. http://dx.doi.org/10.1080/0960310042000211605
- Blonigen, B. (1997). Firm-specific assets and the link between exchange rates and foreign direct investment. American Economic Review, 87, 447–65.
- Barai, P., and Mohanty, P. (2010). Short term performance of Indian acquirers–effects of mode of payment, industry relatedness and status of target.
- Bertranda, O., and Marie-Ann, B. (2012). Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers. Journal of Comparative Economics, 40(3), 413–437. http://dx.doi.org/10.1016/j.jce.2011.11.003
- Cakici N., Hessel C. and Tandon, K. (1996) Foreign Acquisitions in the United States: Effect on Shareholder Wealth of Foreign Acquiring Firms, Journal of Banking and Finance, 20(2), 307-329.
- Cartwright S. and Cooper, C. L. (1993) ‘The Physiological Impact of Mergers and Acquisitions on the Individual: A Study of building society managers’ Volume 3, Pages:327-347.
- Eckbo, E. and Thornburn, K.S. (2000) Gains to Bidder Firms Revisited: Domestic and foreign Acquisitions in Canada, Journal of Financial and Quantitative Analysis, 35(1), 1-25.
- Eckbo, E., and Thorburn, K. (2000). Gains to bidder firms revisited: domestic and foreign acquisitions in Canada. Journal of Financial and Quantitative Analysis, 35, 1–25. http://dx.doi.org/10.2307/2676236
- Fee, C. E., and Thomas, S. (2004) Sources of Gains in Horizontal Mergers: Evidence from Customer, Supplier, and Rival Firms, Journal of Financial Economics, 74(3), 423- 460
- Hassan, M., Patro, D.K., Tuckman, H. and Wang, X.(2007) Do Mergers and Acquisitions Create Shareholders Wealth in the Pharmaceutical Industry, International Journal of Pharmaceutical and Healthcare Marketing, 1(1), 58-78.
- Jha, Ravinder (2007) Options for Indian Pharmaceutical Industry in the Changing Environment, Economic and Political weekly, September 29, 3958-66.
- Kohli, R., and Mann, B. J. S. (2011). Analyzing determinants of value creation in domestic and cross–border acquisitions in India. International Business Review.
- Kose, J., Steven, F., Nguyen, D., and Vasudevan, G. K. (2010). Investor protection and cross-border acquisitions of private and public targets. Journal of Corporate Finance, 16, 259–275. http://dx.doi.org/10.1016/j.jcorpfin.2010.02.001
- Markides, C., and Oyon, D. (1998) International Acquisitions: Do They Create Value for Shareholders?, European Management Journal, 16(2), 125-135.
- Moeller, S. B., Schlingemann, F. P. and Stulz, R. M., (2004) Firm Size and the Gains from Acquisitions, Journal of Financial Economics, 73(2), 201-228.
- Rani, N., Yadav, S. S., and Jain, P. K. (2011). Impact of mergers and acquisitions on shareholders’ wealth in short-run: an empirical study of Indian pharmaceutical industry. International Journal of Global Business and Competitiveness, 6(1), 40–52.
- Shahrur, H.(2005), Industry Structure And Horizontal Takeovers: Analysis of Wealth Effects on Rivals, Suppliers, and Corporate Customers, Journal of Financial Economics, 76(1), 61-98.
- Singh, P., Suri, P., and Sah, R. (2010). Economic value added in Indian cross border mergers. International Journal of Business Research, 12(2), 160–164
- Travlos, N. G., (1987) Corporate Takeover Bids, Methods of Payment, and Bidding Firms’ Stock Returns, Journal of Finance, 42 (4), 943-963
- Walker, M. (2000). Corporate takeovers, strategic objectives, and acquiring-firm shareholder wealth. Financial Management, 29, 3–66. http://dx.doi.org/10.2307/3666361
- Zhu, P., and Malhotra, S. (2008). Announcement effect and price pressure: An empirical study of cross-border acquisitions by Indian firms. International Research Journal of Finance and Economics, 13, 24–41.
- Zhu, P., Jog, V., and Otchere, I. (2011). Partial acquisitions in emerging markets: A test of the strategic market entry and corporate control hypotheses. Journal of Corporate Finance, 17, 288–305. http://dx.doi.org/10.1016/j.jcorpfin.2010.09.003
Abstract Views: 61
PDF Views: 0