Kim, Jin Young. 2011. Sources Of Synergy In Mergers And Acquisitions. Doctoral
Dissertation, Cornell University.
The general findings of the
merger literature have raised the question of why mergers continue to be so
prevalent when there is no conclusive evidence of value gains. In particular,
the zero or even negative stock price reaction of the acquirer firm surrounding
the announcement has been puzzling. In order to provide insight into this
apparent contradiction, this study examines the sources and the realization of
synergistic gains from mergers and acquisitions more directly. Prior studies on
the sources of synergy have not been very effective since the nature of the
data may have obscured the true economic impact of mergers. Using the rich
information gained from the U.S. hotel industry data from 1991 to 2009, this
study investigates the sources of merger-related gains while controlling for
the market condition. Along the way, the much-neglected area of value erosion
from M & A is also addressed. The findings indicate that at the hotel
property level, both the target and the acquirer show significant cost savings;
target hotel properties achieve price gains when they are merged into similar
brand families of the acquirer; acquirer hotel properties gain occupancy
improvements from the demand spillover from the target hotel properties. The
study also finds that local market conflicts have a negative impact on the
revenue of both target and acquirer properties. No evidence was found for
price-increasing collusion among the properties of the target and the acquirer.
The investigation of the offer premium and the operating performance shows that
the offer premium is positively associated with synergistic gains for the
acquirer properties while it is non-significant for the target properties.
These results suggest an interesting possibility that the premium may actually
be a price to gain control over the target's resources, which is critical to
generating value on the acquirer side.
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