The Effect of Premium and Payment Method on Post-Merger Performance
Date Issued
2009
Date
2009
Author(s)
Wu, Yin
Abstract
70% of U.S. enterprises diversify their business by merger and acquisition (M&A). As the number of M&A cases keeps increasing; however, it doesn’t enhance the rate of success at the same pace. Over the past 75 years, more than half of M&A cases didn’t reach the expected synergy; thus, how to find key success factors of an M&A case becomes more important. This study investigates the effect of merger premium and payment method on post-merger performance of 385 non-financial industry merger cases completed during 2000 to 2006. Furthermore, this study divides the full sample by method of payment and utilizes growth rate in equity market value 2 years after the merger activity as indicator of merger synergy. Other potential factors of success are regressed on merger synergy and the empirical results are as follows:.The merger premium reflects the extent of confidence that the acquiring firm has in realizing expected post-merger performance in the future and has significantly positive effect on merger synergy..The method of payment reveals how much information the acquiring firm has, and in most of the cases, M&A by cash payment outperforms in post-merger performance than those by stock payment. .For cash mergers, the debt ratio and prior performance of acquiring firms have significantly negative effect on post-merger performance..For stock mergers, prior performance of acquiring firms has significantly negative effect on post-merger performance but there is a significantly positive relation between the relative control of acquiring firms and post-merger performance .
Subjects
Mergers and Acquisitions (M&A)
Premium
The Method of Payment.
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ntu-98-R96722001-1.pdf
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