The Impact of Pre-merger Disclosure and Acquisition Experience on Mergers and Acquisitions

Abstract

This thesis focuses on the effect of factors in the pre-acquisition planning stage on M&A outcomes. With three empirical chapters, the main findings provide compelling evidence that pre-acquisition factors are related to M&A fundamentals such as the motivation and incentives to carry out M&A transaction, and play significant roles in deal’s negotiation and post-acquisition integration.

The first empirical chapter of this thesis investigates whether the voluntary disclosure at pre-acquisition issuance activities, i.e. the intended ‘use of proceeds’, has influence on subsequent M&A outcomes. The results show that firms disclosing acquisition intention at debt/equity issuance significantly raise more funds but fail to allocate capital efficiently on value-increasing M&A transactions. This evidence is consistent with the capital need theory.

The second empirical chapter examines the wealth effect of mega corporate takeover and explores whether rich acquisition experience facilitate acquirers to generate shareholder value in mega-deals. The findings show that acquirer’s acquisition experience is positively related to mega-deals completion likelihood, stock performance in short- and long-run, and operating performance in the long-run following mega-mergers. The evidence indicates that acquirers are able to learn though experience and develop skills to deal with the complexity of mega-mergers.

The final empirical chapter provides evidence on the relationship between target CEOs’ acquisition experience and takeover gains for target shareholders. The results show that target shareholders are likely to receive lower bid premiums and earn lower abnormal stock returns around deal announcement when they have a CEO with more acquisition experience. Additionally, target CEOs’ acquisition experience is positively related to stock payment. Our evidence suggests that more experienced target CEOs tend to bargain for more personal benefits related to the voting influence in the combined firm instead of helping their shareholders to gain bargaining advantage in the negotiation.