Value Creation Through Mergers and Acquisitions in Intra-Industry Downturns: An Empirical Study of Short-term Value Creation in Commodity Industries

Hans Jørgen Bogen Asplin & Markus Sørum Vestnes

Student thesis: Master thesis


The role of mergers and acquisitions (M&As) has previously been documented to have an important role in intra-industry downturns. However, takeover literature appears to lack comprehensive research on the economic performance of M&As conducted in such downturns, as well as factors characterizing the obtained returns. Using a global sample consisting of 102 bidder and 79 target deals, we conduct an extensive investigation to measure the short-term value creation from M&As for the shareholders of both bidders and targets. To create an understanding of M&As executed in times of intra-industry downturns, we examine commodity firms, as they experience distinct downturns. Furthermore, we apply an event study methodology to determine cumulative abnormal returns, as well as average abnormal returns, to measure M&A performance. Additionally, a cross-sectional analysis is conducted to address the impact of relevant deal and firm characteristics. The results show that (1) in contrast to initial expectations, the acquirers’ shareholders gain significant positive returns during downturns. Moreover, in line with previous studies, we find that the targets’ shareholders generate higher returns than bidders’ shareholders. (2) For bidding firms, we find stock offers to outperform those of cash and mixed offers, opposing an anticipated signaling effect. When assessing the target, we observe that cash and mixed payments outperform stock offers, in line with previous research. (3) Contradictory to previous research, we find acquirers’ pre-announcement performance to be positively related to bidder returns. (4) Consistent with previous research on the free cash flow hypothesis, bidder returns are found to be negatively related to excess cash, while investment opportunities have a positive relationship. However, we find no evidence for these bidder characteristics to affect target returns. (5) For both targets and bidders, we cannot prove that abnormal returns are affected by the strategic rationale of the M&A, contradicting initial expectations. (6) Lastly, our results do not support an explanatory effect from the financial situation of the target on neither the bidder nor target returns. Overall, our findings suggest that M&As related to intra-industry downturns create value for both targets and bidders, and that the characteristics applied to explain these returns tend to contradict theoretical predictions provided by relevant literature.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages139