Timing and economic value of mergers and acquisitions

Doctor of Philosophy in the Faculty of Business Administration

Empirical research in mergers and acquisitions over the thirty years, shows that predators make low gains or even small losses, while target shareholders experience substantial gains. Jensen and Ruback (1983) summarize the empirical results of over 40 studies and Copeland and Weston (1988) also provide a good syrvey. Some theories have emerged to try and explain why shareholders of bidding firms do not benefit from mergers and acquisitions. However, merger waves are a structural phenomena (Town 1991) and if mergers are cyclical then it is difficult to generalize about their financial consequences, since there is a risk that mergers are not randomly distributed relative to profit sensitive variables such as economic growth, interest rates or stock market behaviour. This thesis argues that "poor timing" by bidding firms is a critical factor in the financial outcome od bids, which may be an additional explanation for the poor performance of bidders. Simultaneously, it is shown that deal structuring elements such as bid-price and the method of payment are adjusted to the stock-market cycle, and may counterbalance the value reduction of poor bid-timing.