Merger N Aquisition

Department of Business Studies MSc. in Finance

Authors: Rikke Eriksen (Exam ID: 271339) Louise M. Møller (Exam ID: 271313)

Advisor: Jan Bartholdy

An empirical study of the value creation in Mergers and Acquisitions – in relation to the strategic rationale

Focusing on acquiring companies located in the UK or Scandinavia

September 2008 Aarhus School of Business, University of Aarhus

Abstract

This thesis evaluates the effects of mergers and acquisitions upon the acquiring company based on the underlying strategic rationale for the deal. The analysis is based on both daily stock prices (analysis up to 1 year after the event) as well as on operating measures (analysis up to 3 years after the event) in relation to UK and Scandinavian based acquiring companies. An event study approach is taken to evaluate the abnormal performance following a merger or an acquisition. Both a parametric t-test as well as different non-parametric tests are conducted and the empirical results indicate that the highest amount of power and reliability is attached to the non-parametric tests. The main empirical results from the thesis in relation to the performance of the acquiring firms are that in most cases it is not possible to detect any abnormal performance. This indicates that it is not possible to find support in favour of a positive reaction or effect of a merger. However, in cases when an abnormal performance is detected it is mostly negative indicating that the acquiring company looses value. In the shortest period of time around the event day the stock prices show some evidence in favour of a positive reaction in the stock prices in response to the deal. In relation to the investigation of differences between the different strategies it appears that it is not possible to conclude that all of the strategies differ. However, some indication of one strategy outperforming the remaining strategies as well as one strategy being outperformed by the others was detected from...