Is there a value creation for the shareholder of the acquirer in an acquisition in the capital-intensive industries?
Abstract
The capital-intensive industries are known to improve the living standard of an economy in the long run. This research is an attempt to understand both the short-term and long-term value creation as a result of an acquisition for the shareholders of the acquirer in three capital-intensive industries- chemicals, metals and oil & gas. For each of these three industries, the largest 5 deals (by value) undertaken in 2014 were analysed. It is known that the acquisition announcement leads to an abnormal short-term returns, which is attributed to the shareholder?s reaction to the acquisition announcement. Prior to conducting the analysis for the short-term value creation, the similarity in the returns across the three industries on a non-acquisition day was analysed, which paved the way for a common analysis for the three industries in short-run. By analysing the change in returns due to the announcements, it was found that on average the returns were negative i.e. value destruction. It is also expected that due to a successful integration after the acquisition, synergy is created which is reflected in the improvement in operating performance metrics. Prior to conducting the analysis for the long-term value creation, the similarity in the capital structure across the three industries prior to the acquisition was analysed, which paved the way for a common analysis for the three industries in long-run. By analysing the change in operating performance due to the acquisition, it was found that on average the performance detoriated i.e. value destruction. Thus, there is a value destruction for the shareholder of the acquirer in an acquisition in the capital-intensive industries.
