Buyer Power in Conglomerate Acquisitions
Georgia State University
Tulane University - Department of Finance
We examine the sources of value creation in conglomerate acquisitions. Consistent with a buyer power explanation, our proxies for the merging firms’ change in purchasing concentration are positively related to the combined wealth effect of merging firms, negatively related to the change in cogs-to-sales of merging firms, and negatively related to the wealth effects of common supplier industry firms and rival firms. Furthermore, we document post-acquisition decreases in output prices for the main common supplier industry. We find that greater asset complementarities and increased debt capacity also generate larger gains for merging firms. Finally, agency considerations drive some conglomerate acquisitions.
Number of Pages in PDF File: 77
Keywords: corporate finance, conglomerate acquisitions, buyer power, product market effects, asset complementarities, financial synergies
JEL Classification: G34, L11, L22, L25, D57
Date posted: April 7, 2013 ; Last revised: July 15, 2015
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