Media Impacts on Mergers and Acquisitions:
Evidence from UK Market

Abstract

This thesis examines the impact of financial media on UK merger and acquisition (M&A) deals from several perspectives. The Chapter 2 examines the impact of financial media on M&A performance using UK M&A data from 1981 to 2010. The results show that, both in the short run and long run, deals with media coverage outperform deals without media coverage. Moreover, the results indicate a significantly negative correlation between media pessimism and post-merger performance both in the short run and long run. These findings suggest that pre-merger news released by influential financial media has a large impact on market reactions to M&A announcements, consistent with the investor recognition hypothesis. Furthermore, the negative correlation between media pessimism and acquirer returns suggests that high media pessimism about M&As leads to downward pressure on market prices.

Chapter 3 examines how media coverage and media pessimism influence takeover outcomes, based on the same database as in the first chapter. It is generally believed that financial newspapers directly impact investor sentiment concerning both individual stocks and the market as a whole (Antweiler and Frank, 2004; Joe et al., 2009; Ferguson et al., 2012; Jegadeesh and Wu, 2012; Chen et al., 2013; Garcia, 2013). Moreover, M&As often occur due to either takeovers or tender offers and usually require bidders to buy the target stock for more than its current market value (Jensen and Ruback, 1983). However, Branch et al. (2008) state that about 10% of announced takeover attempts fail, including those withdrawn by the acquirer or rebuffed by the target firm. Failure usually consists of withdrawn or pending takeovers. Successful takeovers are contractual agreements in which both acquirers and targets have enough interest to agree on an offer.

Chapter 4 tests the different impacts of media pessimism in hot and cold markets. This paper is primarily motivated by the growing importance of media sentiment among merger waves. The principle result suggests that acquirers are subject to less media pessimism when the deal is announced during a hot market valuation period. Moreover, the results also show that acquirers obtain significantly higher short-run announcement returns for deals announced during hot markets with low media pessimism and significantly lower long-run returns for deals announced during cold markets with low media pessimism. The finding is in line with early investigations by Petmezas (2009), who states that managers undertaking takeovers during hot markets can earn positive returns in the short run and earn insignificant returns during cold markets.