The Potential Impact Of The Market

2092 Words9 Pages
The present study proposes to test the potential impact of the market’s reaction to merger announcements. Mergers & Acquisitions have long been used as tools for expansion into newer markets, products, segments and opportunities to jumpstart growth for companies that have seen growth plateaued after a point in time. Large corporations use mergers and acquisitions as means to enhance growth given that growth in some of these markets tends to be muted and M&A is seen as means to an end. Whether acquirers benefit from mergers and acquisitions has been a matter of constant debate. However, the acquired companies generally tend to benefit from the acquisition with the shareholders receiving handsome premiums on the listed price especially if there are more than one bidders in the fray and it goes into a bidding war.
Top management is extremely concerned about how the market will react to the announcement of mergers and acquisitions given that several deals fall through due to an adverse impact, post announcement of the news. The semi strong form of efficient market hypothesis states that all public information is reflect in a security’s market price. When the market responds to merger announcements it is purely correcting and adjusting itself to the price which it deems correct based on facts and figures of the merger. Given that a large number of times companies pay huge premiums above listing prices of acquired companies, markets tend to view that, as cases of having overpaid

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