Effects of Private and Public Canadian Mergers

Abstract

This paper examines the merger announcements of Canadian companies between 1994 and 2000 during an exceptional merger hum The results show that the one and the other the target companies and the acquirer companies obtain significant positive abnormal go [i]or[/i] come backs during this time period. Companies that acquire private targets with stock have positive returns; however, acquirers of private firms have significantly higher risk compared with those that acquire public targets, despite nonsignificant differences in turn backs Acquirers pay significantly less to acquire private firms than public firms, especially with stock. Overall, the findings remind of there is support for a liquidity discount for private firms, and the market is efficient in valuing firms in asymmetric conditions.

JEL Classification: G340

Key words: Mergers; acquisition; private acquirers; shareholder wealth; return

R?©sum?©

Dans cet article, nous examinons le annonces de fusions de compagnies canadiennes entre 1994 et 2000 p?©riode de grand hum de fusion. Les r?©sultats montrent qu'au cours de cette p?©riode, le compagnies cibles et le compagnies acqu?©reuses obtiennent de rendement anormaux positifs. Le entreprises qui ach??tent de cibles priv?©es avec de actions ont de rendement positifs; cependant, ce entreprises ont de risques consid?©rablement plus ?©lev?© par rapport aux entreprises qui ach??tent de cibles publiques nonobstant de diff?©rences n?©gligeables dans le rendement Par ailleurs, le acqu?©reurs paient nettement moins pour acheter le entreprises priv?©es que pour acheter le entreprises publiques, en particulier celle qui ont de actions. Dans l'ensemble le r?©sultats de l'?©tude r?©v??lent qu'il est n?©cessaire d'escompter la liquidit?© pour le entreprises priv?©es et que le march?© permet de valoriser le entreprises dans le conditions asym?©triques.

Mot cl?© : Fusions; acquisition; acqu?©reurs priv?©s; valeur pour actionnaire; rendement

In the 1990 we witnessed a certain number of spectacular merger activities, including the frenetic initial public offerings and acquisitions of dot.com companies, the prominence of global business and transnational merger and unprecedent mega-merger deals similar as the $165 billion AOL-Time Warner deal. Pryor (2001) estimates that between 1992 and 1999 the total recorded value of merger deals grew at an annual rate of 357% and from 1985 to 1999 the total turn of mergers rose at 208% annually.

Canadian managers were actual active in mergers and acquisitions between 1994 and 2000 We examined the impact of merger upon Canadian shareholder returns and place that, in contrast to U studies of shareholder turn backs earlier Canadian studies appear to consistently exhibit positive and significant returns to acquiring firm shareholders. Differences in Canadian industry, capital markets, and regulations appear to justify the difference in the Canadian experience. however the Canadian studies are not many and more evidence is needed; this paper provides the greatest in quantity current evidence from the novel worldwide merger boom of the 1990s

Little is known about the Canadian experience upon the acquisition of private firms. nevertheless they are understated in their importance because they show by far the most public target for acquisition. Acquiring a private firm raises the interesting question of whether the market can value an acquisition below asymmetric information conditions. The asymmetric information condition appears where there is scarce public information about a private target, and where the acquirer likely knows more about the target's value than the public does.

We are motivated to examine the impact of merger and acquisitions upon Canadian acquiring and target companies for several reasons. First, the three early studies in Canada report positive and significant gains to acquiring companies. This present the appearances to be at odds with greatest in quantity merger studies done on U companies, which report significant negative or nonsignificant go [i]or[/i] come backs to acquiring companies. Is this still the case? Possible explanations for this difference are that Canadian capital markets, industries, and companies are a great deal of smaller than the U.S. Canadian industrial markets are characterized by the agency of fewer firms and a greater concentration of output relative to the U markets (Eckbo 1992) Finally, anti-trust laws are more make knowned and stricter in the U than in Canada. upon the other hand, Canada had fewer regulations upon mergers and acquisitions until 1985 Market regulations appear to be correlated with acquirer returns

Another reason for examining abnormal go [i]or[/i] come backs is that since the 1980s' merger activity there has been a worldwide merger roar Pryor (2001) characterizes the 1990 as a decade of merger distinct from the 1980 in the U Canada, and OECD countries. Given this extraordinary period of merger in the 1990 there is reason to believe that changes have occurr in the get back patterns to acquirer and target companies above time.

We want to answer the following questions: (a) is the conclusion of Pryor (2001) that the merger in the 1990 are distinct from those of the previous periods correct and, in particular, are there changes in go [i]or[/i] come back patterns of acquirers and targets in the 1990 merger boom?; and (b) do acquiring firms earn/lose differently when they acquire private versus public firms?