Bidder Gains and Losses of Firms Involved in Many Acquisitions

Authors

  • Antonios Antoniou,

    1. The first and second authors are from Durham Business School, Durham University – Department of Economics and Finance. The third author is from Cass Business School – Faculty of Finance. They would like to thank George Alexandridis, John Doukas, Krishna Paudyal, Andrew Stark (editor), an anonymous referee, and participants at the 2005 European Financial Management Association (EFMA) meeting and the 2005 Multinational Finance Society (MFS) meeting for their helpful comments on earlier versions.
    Search for more papers by this author
  • Dimitris Petmezas,

    1. The first and second authors are from Durham Business School, Durham University – Department of Economics and Finance. The third author is from Cass Business School – Faculty of Finance. They would like to thank George Alexandridis, John Doukas, Krishna Paudyal, Andrew Stark (editor), an anonymous referee, and participants at the 2005 European Financial Management Association (EFMA) meeting and the 2005 Multinational Finance Society (MFS) meeting for their helpful comments on earlier versions.
    Search for more papers by this author
  • Huainan Zhao

    Corresponding author
    1. The first and second authors are from Durham Business School, Durham University – Department of Economics and Finance. The third author is from Cass Business School – Faculty of Finance. They would like to thank George Alexandridis, John Doukas, Krishna Paudyal, Andrew Stark (editor), an anonymous referee, and participants at the 2005 European Financial Management Association (EFMA) meeting and the 2005 Multinational Finance Society (MFS) meeting for their helpful comments on earlier versions.
      * Address for correspondence: Dimitris Petmezas, Centre for Empirical Research in Finance, Durham Business School, Durham University, Mill Hill Lane, DH1 3LB, UK. e-mail: dimitris.petmezas@durham.ac.uk
    Search for more papers by this author

* Address for correspondence: Dimitris Petmezas, Centre for Empirical Research in Finance, Durham Business School, Durham University, Mill Hill Lane, DH1 3LB, UK. e-mail: dimitris.petmezas@durham.ac.uk

Abstract

Abstract:  We examine shareholders' wealth effects (both in the short- and the long-run) of UK frequent bidders acquiring public, private, and/or subsidiary targets with alternative methods of payment between 1987 and 2004. We find that, in the short-run, bidders break even when acquiring public targets and gain significantly when buying private and subsidiary targets. This result is robust after controlling for relative size, bidder's book-to-market ratio, target origin, and industry diversification. Our long-run evidence, however, reveals that acquirers experience, significant wealth losses regardless of the target type acquired, indicating that markets may initially overreact to the acquisition announcement. As a result, we argue that contrary to Fuller et al. (2002) who suggest that acquiring private and subsidiary firms creates value for bidding firms, a reliable conclusion on bidders' shareholders wealth effects cannot be based solely on a short-run event study.

Ancillary