How Stock-Swap Mergers Affect Shareholder (and) Bondholder Wealth: More Evidence of the Value of Corporate 'Focus'

Posted: 23 Feb 1999

See all articles by Lance A. Nail

Lance A. Nail

University of Alabama at Birmingham - Department of Finance, Economics, and Quantitative Methods

Carlos P. Maquieira

University of Chile - Diagonal Paraguay

William L. Megginson

University of Oklahoma

Abstract

Alfred Chandler once described the U.S. conglomerate movement of the 1960s and '70s as an "historical aberration and a "disaster." And the recent trend in corporate mergers and acquisitions away from "diversifying" acquisitions would seem to confirm Chandler's argument. In what constitutes yet another piece of evidence in support of Chandler's argument, the authors of this article conducted a study of changes in debt and equity values in 260 stock-for-stock mergers completed between 1963 and 1996. With a sample almost evenly divided between conglomerate and "related" mergers, the authors report significant net wealth gains for all securityholders as a group in "related" mergers, but generally insignificant net gains for securityholders in conglomerate mergers. Not surprisingly, target firm shareholders experienced net wealth gains in both kinds of acquisitions; but for acquiring company shareholders, there was a striking difference: economically and statistically significant gains for acquirers in related transactions, and significant losses for acquirers in conglomerate deals. Perhaps the biggest surprise of the study, however, was that even the bondholders of acquirers in related mergers benefited more than bondholders in conglomerate deals. The result is surprising because, to the extent bondholders benefit from corporate diversification, one would expect the opposite result. That bondholders in related mergers experience larger wealth increases than those of conglomerate acquirers is just one more sign of the dramatic differences in total value created by the two kinds of mergers.

JEL Classification: G31, G32, G34

Suggested Citation

Nail, Lance A. and Maquieira V., Carlos Patricio and Megginson, William L., How Stock-Swap Mergers Affect Shareholder (and) Bondholder Wealth: More Evidence of the Value of Corporate 'Focus'. Journal of Applied Corporate Finance, Vol. 11, No. 2, Summer 1998. Available at SSRN: https://ssrn.com/abstract=150184

Lance A. Nail (Contact Author)

University of Alabama at Birmingham - Department of Finance, Economics, and Quantitative Methods ( email )

Birmingham, AL 35294
United States
205-934-8501 (Phone)
205.975.4427 (Fax)

Carlos Patricio Maquieira V.

University of Chile - Diagonal Paraguay

257 OF 1206
Santiago
Chile

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

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