M&A and Competition
Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Pavel Savor, DePaul University
Beyond the Target: M&A Decisions and Rival Ownership
AbstractDiversified acquirer shareholders can profit from value-destroying acquisitions not only through their target stakes, but also through their stakes in non-merging rival firms. We find that announcement losses are largely mitigated for the average acquirer shareholder when accounting for wealth effects on their rival stakes. Close to a third of acquirer shareholders benefit from bad acquisitions at the industry portfolio level. Rival ownership by acquirer shareholders is negatively associated with acquirer CAR and deal synergies, while positively associated with the probability of bad deal completion. These results help explain why shareholders often lack incentives to monitor against value-destroying acquisitions.
Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry
AbstractUsing novel data from the pharmaceutical industry, we study the impact of mergers on product prices and innovation. Product prices increase approximately 5% more within acquiring versus matched non-acquiring firms. These price increases are more pronounced for horizontal mergers and for acquisitions of large and publicly traded targets, i.e., deals resulting in greater market power consolidation. Consistent with causal identification of enhanced market power around mergers, price increases are significantly greater within drug classes with acquirer/target overlap and absent for drugs already shielded from competition through patents and exclusivity rights. We find no evidence of mergers facilitating or incentivizing innovation—a potential tradeoff to higher product prices.
- G3 - Corporate Finance and Governance