Mergers and Acquisitions in a Global Context: Reaction of Price and Earnings Estimates
Posted: 1 Nov 2001
Using a global sample of mergers and acquisitions exceeding a transaction value of USD 1 bln in 1998, this paper examines the short-term reaction of stock prices and analysts' earnings estimates to the announcement of a merger or acquisition. As expected, targets and merging firms outperform the market in the period before, and on the day of the announcement. However, merging firms show a significant underperformance of 0.2% a day immediately after the announcement. Moreover, there is a lack of upward revisions in consensus earnings estimates, as reported by IBES, for the post-announcement years. This suggests that synergies are hard to find and that the outperformance for merging firms in the days up to and including the announcement day was unjustified. For acquirers, which show no abnormal returns before and after the announcement, there is also a lack of upward revisions, but relative to the market average earnings estimates do well. If there are benefits at all, acquirers seem to reap the fruits of their takeover after two years at the earliest.
Keywords: mergers, acquisitions, acquirers, targets, synergies, earnings revisions
JEL Classification: G12, G14, G15, G34
Suggested Citation: Suggested Citation