Do Shareholders of Acquiring Firms Gain from Acquisitions?

13128 Words Aug 13th, 2013 53 Pages
NBER WORKING PAPER SERIES

DO SHAREHOLDERS OF ACQUIRING FIRMS GAIN FROM ACQUISITIONS? Sara B. Moeller Frederik P. Schlingemann René M. Stulz Working Paper 9523 http://www.nber.org/papers/w9523 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2003

We are grateful to Harry DeAngelo and Ralph Walkling for useful comments. The views expressed herein are those of the author and not necessarily those of the National Bureau of Economic Research. ©2003 by Sara B. Moeller, Frederik P. Schlingemann, and René M. Stulz. All rights reserved. Short sections of text not to exceed two paragraphs, may be quoted without explicit permission provided that full credit including ©notice, is given to the source.
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Kaplan and Weisbach (1992) have a sample of 282 large acquisitions. They find that almost 44% of the acquisitions are subsequently divested. 216 of their acquisitions were acquisitions of public companies. The acquired assets were then spun off in some cases and acquired by other companies in most cases. Hence, in their sample, the same assets most likely were first acquired as a public firm acquisition and then as a division acquisition in the divestiture.

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Roughly, one quarter of the firms acquiring public firms are small firms whereas half of the firms acquiring private firms are small firms. The small firms that acquire public firms on average increase shareholder wealth doing so; the large firms do not. Whether an acquiring firm is a small firm explains more of the return to shareholders than how the acquisition is paid for and at least as much as whether a public company, a private company, or a subsidiary is acquired. An acquisition made by a small firm, regardless of form of payment and regardless of the organizational form of the assets acquired, has an announcement return that is 2.24% higher than a comparable acquisition made by a large firm. In contrast, acquisitions of public firms made by large firms make losses for the shareholders of the acquiring firm irrespective of
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