Impact of Mergers on Stock Prices

8/4/2019 Impact of Mergers on Stock Prices

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MANAGEMENT RESEARCH PROJECT

Impact of Mergers & AcquisitionsAnnouncements on Stock Price Return

Submitted to:- Submitted by:

Prof. Nikhil Rustogi Setu Sharda

(Faculty Guide) 08bshyd0738


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Impact of Mergers & Acquisitions Announcements on

Stock Price Return

A re port

Submitted in partial fulf i l lment of the

requirements of MBA Program of

ICFAI Business School

Submitted

By

Setu Sharda

08bshyd0738

Prof. Nikhil Rustogi

(Faculty Guide)


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ACKNOWLEDGEMENTS

Any achievement does not come from ones contribution; it requires some support from the

superior to make the task uncomplicated.

I acknowledge my endeavor to my Faculty Guide Mr Nikhil Rustogi whose invaluable guidance

and suggestion has helped me to complete this project. I would also like to thank my parents and

friends whose constant support helped me to complete this project.

Setu Sharda


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AUTHORIZATION

This is to authorize that this report has been submitted in partial fulfillment of the project on

Impact of Mergers & Acquisitions on Stock Price Returns as per the requirements of two

years Post Graduate Diploma in Business Management course at ICFAI Business School,

Hyderabad.

\


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ContentsABSTRACT .................................................................................................................................................. 6

1.0 INTRODUCTION .................................................................................................................................. 7

1.1 Objectives ........................................................................................................................................... 7

1.2 Scope of the study ............................................................................................................................... 7

1.3 Background ......................................................................................................................................... 8

1.3.1 Event Study .................................................................................................................................. 8

1.3.2 Merger & Acquisition Event........................................................................................................ 8

1.4 Structure of the Report ...................................................................................................................... 10

2.0 LITERATURE REVIEW ..................................................................................................................... 11

3.0 METHODOLOGY ............................................................................................................................... 14

3.1 Data Collection & description........................................................................................................... 143.2 Procedure .......................................................................................................................................... 15

3.3 Abnormal Return .............................................................................................................................. 16

4.0 Result and analysis................................................................................................................................ 19

5.0 GRAPHS............................................................................................................................................... 19

6.0 TABLE SHOWING ABNORMAL RETURN RESULTS ................................................................... 22

7.0 ANALYSIS........................................................................................................................................... 27

8.0 CONCLUSION- ................................................................................................................................... 28

9.0 ANNEXURE......................................................................................................................................... 29

10.0 References........................................................................................................................................... 30


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ABSTRACT

Event study is becoming popular among investment professionals. Event study measures security

price changes in response to events. There can be lot of corporate events taking place every day,

which creates opportunities for event driven investment. Event study thus has become animportant tool for investors who intend to benefit out of such events. Merger and Acquisition is

one such event that has significant impact in the life of a firm. The project attempts to cover the

M&A in the year of 2007, 2008 and 2009 under S&P Cnx Nifty. The paper investigate the

consequence of Merger and Acquisition as an event and its effect on stock price return in and

around the M&A announcement.

The Price returns are measured as abnormal return.. The estimation window is for the purpose of

the study was Day-30-210. The estimation period is the period where we measured the

relationship between the stock and variables. The event window considered for study was Day -

10 to Day +20 for calculation of abnormal return. The project used a market model to predict the

relationship between the announcement and returns.

The findings of the project states that the M&A as event does generate an average abnormal on

Day 0, the affect of the event is also seen on Day +1, however it is not significant on Day+1. The

affect of M&A slows down once it is past one day old in the market. The event also generates a

significant average trading volume on Day 0 and Day +1 until it tends to return to normal level

of volume.


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1.0INTRODUCTION

1.1 Objectives

The Project aims fulfill the following objectives related to Mergers & Acquisitions under S&P

CNX Nifty on:

To test if M&A as an event can generate abnormal returns for the shareholders. To predict the stock prices by studying the return behavior of companies after merger To understand the impact of M & A activities on the stock prices. To analyze event study process and their applicability in capital market.

1.2 Scope of the study

The increased number of M&A raises the question about the outcomes of corporate mergers and

acquisitions vis--vis the stockholders. A number of studies both, in the economics and strategic

management literature, have attempted to identify the impacts of M&A on the financial

performance of firms. Event study is one such tool that tries to find the price performance of the

stock. The study considers the stock price and interprets the impact of the M&A to calculate the

abnormal return around the announcement date. The abnormal return gives a fair understanding

to the investors, as how the market reacts to the event. A positive or negative abnormal return is

an indication of the gains and losses for an investor in relation to the happening of the event. The

study also intends to find the variables which can affect the cumulative abnormal during the

announcement period. Empirically it is found that the nature of the target has an effect on the

stock price performance of the acquirer.


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1.3 Background

1.3.1 Event Study

An event study1 measures the impact of a specific event on the value of a firm. The importance

of the study comes from the fact that, given the rationality of the market, the effect of a particular

will be immediately on the security price. Event studies started as tests of the semi-strong form

of market efficiency, which says that all publicly-available information gets impounded

instantaneously into the stock price. Hence, an event study aims to measure the direction and

magnitude of the impact an event would have on value based on its effect on the company's stock

price after the event is announced.

The Event Driven Investment Strategy is an important tool that aims to capitalize on the

irrationality of investors. Investors react quite inconsistently based on events, before properly

analyzing the event. During this period, the event-driven investor can trade on news. The event

study has many applications. In accounting and finance research, event studies have been applied

to a variety of firm specific and economy wide events. Some examples include mergers and

acquisitions, earnings announcements, issues of new debt or equity, and announcements of

macroeconomic variables.

Event studies have a long history. The first paper published in this field was in year 1933 by

James Dolley, where he studied the price effect of stock split. He used a sample of 95 stock splitsfrom 1921 to 1931 and found that the price increased in 57 of the cases.

1.3.2 Merger & Acquisition Event

Mergers & Acquisitions is one such event that has a profound impact on the companys stock

price movements. It is a strategic move on parts of both the acquirer and the target company. It

not only affects the financial performance of the company but also influences market price of the

stock, which in turn affects shareholder wealth.

1A. Craig mackinlay, Event studies in economics and finance, retrieved from

http://yaya.it.cycu.edu.tw/course%5CEvent%20Studies%20in%20Economics%20and%20Finance.pdf
http://yaya.it.cycu.edu.tw/course%5CEvent%20Studies%20in%20Economics%20and%20Finance.pdfhttp://yaya.it.cycu.edu.tw/course%5CEvent%20Studies%20in%20Economics%20and%20Finance.pdfhttp://yaya.it.cycu.edu.tw/course%5CEvent%20Studies%20in%20Economics%20and%20Finance.pdf


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The recent surge of interest in M&A activities in the world gives us an impression that M&A

market is starting to mature now. However the M&A market have been very active for more than

a decade. The most striking features of todays M&A waves are the size of the deals and the

speed at which these are growing. Competition for M&A has intensified over the past few years.

The number of bidders per target and increase in transaction value has risen significantly at

present. Despite the competitive pressure, investor still view deals favorable. This can be seen in

low negative announcement effect on the acquirers stock price. In the year 2006 2 the stock

market was more positive about M&A than at any point in the past few years. This can be

because of the reason that higher proportion of the deals are paid in cash, as opposed to stock,

indicating that acquirers are more serious about extracting value since real money is on line.

The increased number of M&As raises the question about the outcomes of corporate mergers and

acquisitions. A number of studies both, in the economics and strategic management literature,

have attempted to identify the impacts of M&As on the financial performance of firms.

Based on different indicators, the studies of post-acquisition performance can be categorized into

two classes. Performance can be measured 3 by

share price, Accounting measures of profitability can be used

Studies concentrating on the share price impacts often use the event study methodology. The aimis to measure the effect, i.e., the abnormal return on the stock value of an event. Hence, to

quantify the effect of the event, one has to calculate the difference between the actual stock

return and a benchmark of what would have been the expected return if the event had not

happened.

The Standard method to calculate the abnormal return (AR) is:

2Kees Cools, Gell, Kengelbach & Roos, The Brave New World of M&A, P 15, retrieved from

http://www.bcg.com/publications/files/Brave_New_World_MA_Aug_2007.pdf

3 Jyrki Ali- Yrkko, Merger and Acquisition-Reasons and Result, P8, retrieved from

http://www.etla.fi/files/614_dp792.pdf
http://www.bcg.com/publications/files/Brave_New_World_MA_Aug_2007.pdfhttp://www.bcg.com/publications/files/Brave_New_World_MA_Aug_2007.pdfhttp://www.etla.fi/files/614_dp792.pdfhttp://www.etla.fi/files/614_dp792.pdfhttp://www.etla.fi/files/614_dp792.pdfhttp://www.bcg.com/publications/files/Brave_New_World_MA_Aug_2007.pdf


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1.4 Structure of the Report

The Report is divided into sections. The first section starts with Introduction about the project.

The second section starts with literature reviews under taken in the field of M&A.

The Third section is methodology. It explains how the data for the study was extracted and

various assumptions for collection of data. It also establishes the procedure required to undertake

an event study. This section also deals with the models that were considered during the source of

the study This section also deals with the statistical tests that were performed to check the

robustness of the model.

The fourth section explains and interprets the results of abnormal returns. It also lays down the

scope for further analysis that can be undertaken in future.

The fifth Section last section shows the graphs.

The sixth section shows the table of the companies showing abnormal return.

The seventh section again analyzes the results obtained.

The eight section concludes the study.

The Annexure and the appendices contain the table of the list of the companies.


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2.0 LITERATURE REVIEW

Announcement Effect & Price Pressure: An Empirical Study of Cross -Border Acquisition by

Indian Firms by PengCheng Zhu & Shavin Malhotra4 (2008) examined the short-term stock

performance of a sample of Indian firms acquiring U.S. firms in the period 1999-2005. The study

showed that Indian market reacted positively to the acquisition announcement. The positive

returns lasted for only three days, after which the returns became negative. The Study used Mean

Adjusted method to calculated abnormal return in and around the announcement. The study also

did cross sectional analysis using CAR as the dependent variable and Cash, Size, Private vs.

Public & Related companies as independent variables. The study concluded that announcement

effect in Indian cross-border M&A were mainly due to price pressure effect rather than

informational effect.

Stock Returns in mergers and acquisition by Dirk Hackbarth And Erwan Morellec-

This paper develops a model for the dynamics of stock returns in mergers and acquisitions, In

which the timing and terms of takeovers are endogenous and result from value-maximizing

decisions. The paper also empirically finds that how the beta of the firm changes at the time of

takeover .The empirical study is done on publicly traded firms which constitute a sample of

1,086 takeovers with announcement dates ranging from January 1, 1985 to June 30,2002.The

study first confirms the fact that the abnormal returns on announcement exhibit the same general

patterns that have been reported previously in the literature. Their result proved that acquiring

firms earn low or negative abnormal announcement returns, while target firms earn substantially

positive abnormal returns around the announcement date of the takeover.

4PengCheng Zhu & Shavin Malhotra, Announcement Effect & Price Pressure: An Empirical Study of Cross-Border

Acquisition by Indian Firms retrieved from http://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdf
http://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdfhttp://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdfhttp://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdf


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The Acquisition Performance Of S&P 500 Firmsby Anand M. Vijh and Ke Yang5(2006),

compared the acquisition performance of S&P 500 and non-S&P 500 firms after controllingfor

differences in firm characteristics. During 1980-2004, S&P 500 firms made a greater numberand

dollar value of acquisitions.

1) They more often used cash payment and tender offers.2) The market reacted less negatively (more favorably) to the announcement of their

acquisitions.

3) They were more likely to complete their deals.The target shareholders seemed to attach incremental value to joining with an S&P 500 firm and

accepted a lower premium in stock deals. The S&P 500 acquirers also had stronger pre-

acquisition operating performance, chose targets with stronger pre-acquisition performance, and

realized significant gains in post-acquisition performance. We interpret the combined evidence

as consistent with the efficiency hypothesis, which suggests that S&P 500 firms are more

efficiently managed firms and make better acquirers.

Firm Size And The Gains From Acquisitionsby Sara B. Moeller, Frederik P. Schlingemann

and Ren M. Stulzc6

(2003), says that small firms are profitable for their shareholders, but these

firms make small acquisitions with small dollar gains. Large firms make large acquisitions that

result in large dollar losses. Acquisitions thus result in losses for shareholders in the aggregate

because the losses incurred by large firms are much larger than the gains realized by small firms.

It examines possible explanations for this size effect, defined as the difference between the

abnormal returns of small acquirers and large acquirers. First, roughly one quarter of the firms

acquiring public firms are small whereas half of the firms acquiring private firms are small.

Second, small firms are more likely to pay for acquisitions with cash than with equity. We find

that the combined dollar return of the acquired and target firms for acquisitionsof public firms is

positive and significant for small firms but negative for large firms.

5The Acquisition Performance Of S&P 500 Firms,retrieved from

http://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdf

6Sara B. Moeller, Frederik P. Schlingemann and Ren M. Stulzc, Firm Size And The Gains From Acquisitions,retrieved

fromhttp://jfe.rochester.edu/03289.pdf
http://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdfhttp://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdf


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Long-Run Volatility And Risk Around Mergers And AcquisitionsbyBharat & Guojun7(2005)

Studies the changes in volatility and risk of acquirers around mergers and acquisitions and seek

to understand the determinants of those changes. We find that there is a strong run-up in

volatility and risk beginning four years before the merger. This pre-merger run-up is consistent

with the hypothesis that M&As are a response to industry shocks. We find that for a period of

about one year after the merger the average volatility measures continue to increase. Beyond that

the systematic volatility and beta begin to decline. However, market-specific volatility continues

to increase for the next two years. The volatility patterns are consistent with the risk of post-

merger integration of the acquirer and the target firms that gets resolved slowly over time. The

findings have important implications for understanding several issues, including the

announcement effect of mergers, the diversification discount, and the long-run under-

performance of acquirers in M&A transactions. The key insight is that as we understand the

volatility and risk dynamics better, we will be able to compute risk adjusted returns more

accurately.

Market Valuation And Merger Waves by Matthew Rhodes-Kropf, S. Viswanathan8(2004),

private information on Acquiring and Target firms leads to increased stock merger activity that is

correlated with market valuation. Managers of bidding firms have private information about the

stand-alone value of their firms and the potential value of merging with a target firm. Managers

of targets have private information about the stand-alone value of their company. Both bidders

and targets have market values that may not reflect the true value of their companies which leads

to mergers & acquisitions. The target has limited information about the components of the mis-

evaluation, and therefore has difficulty in assessing the synergies. The rational target knows

whether their own firm is overvalued or undervalued, so they are not easily fooled, but they

cannot determine whether this mis-evaluation is a market effect, a sector effect, or a firm effect.

7Bharat & Guojun, Long-Run Volatility And Risk Around Mergers And Acquisitions, retrievedfromhttp://ccfr.org.cn/cicf2005/paper/20050201045025.PDF

8Matthew Rhodes-Kropf, S. Viswanathan, Market Valuation And Merger Waves, retrieved from

http://www0.gsb.columbia.edu/faculty/mrhodeskropf/papers/joffinal3.pdf
http://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://ccfr.org.cn/cicf2005/paper/20050201045025.PDFhttp://ccfr.org.cn/cicf2005/paper/20050201045025.PDFhttp://www0.gsb.columbia.edu/faculty/mrhodeskropf/papers/joffinal3.pdfhttp://www0.gsb.columbia.edu/faculty/mrhodeskropf/papers/joffinal3.pdfhttp://www0.gsb.columbia.edu/faculty/mrhodeskropf/papers/joffinal3.pdfhttp://ccfr.org.cn/cicf2005/paper/20050201045025.PDF


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3.0 METHODOLOGY

3.1 Data Collection & description

The report took a sample of 30 M&A events happening recently. The tools used for data analysis

will be Microsoft excel and spss.

The M&A data has been extracted from

company press release and Security exchange board of India (SEBI) Databases like prowess, business beacon

The sample considered for the study include following criteria

All M&A event related to time frame of Jan 2005 to Dec 2008 Companies having more than one M&A event during the event window i.e. (Day -10 to

Day +20) will not be considered, to avoid the effect of the other event on the study.

The events where the transaction value has not been disclosed has not been consideredfor the study.

The acquiring firm is publicly listed.

The transaction value is at least $10 million The sample mainly included the companies in which an open offer has been proposed to

acquire the company.


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3.2 Procedure

Event Date

The date on which a company announces the M&A is the event date. This date can be any day of

the week. The project ensured that the event date were accurate, any deviation in the event date

can manipulate the actual results. The event date was extracted from metric4 database and was

checked against the company press release. In case of any event date mismatch of the database

date and company press release date, the earliest dates from either of the sources were given

priority.

Trade Date

Trade date is the trading day of the stock after announcement of the event. The event date and

the trade date will be same, if the occurrence of the event is announced during the market hours

of the trading session (i.e. between 10 am to 4 pm EST). If the event is announced after the

trading hours (i.e. 4 pm EST) the trade date will be next immediate trading day.

Estimating Event Window

Once events had been identified, we defined the Event Window for the purpose of the study.

However for some clearly defined events, the length of the may not be defined easily. For

example, information on a potential merger may have leaked out weeks prior to the formal

merger announcement. Hence, the impact of the merger may not be fully-accounted for when

only the event date is used. Therefore we have taken this into account and determine a number of

days xprior to the event date to start the event window. It is also possible that the reaction of

the event cannot be digested on the trade date. Hence it becomes necessary to add Ydays to

the event date. For the purpose of the study we have taken event window as Day-10 to Day

+20.


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Evaluating Estimation Window

Once the event window was determined, we defined the Estimation Window necessary for the

purpose of project. The estimation period is the period where we measured the relationship

between the stock and variables. The project chooses an estimation window that does not overlap

with the event window to prevent the effect of the event to influence the normal performance

of the stock. The project selected the estimation window prior to the event window as the

location for estimation period. The estimation window is assumed to be free from the influence

of the event. The impact of M&A event can spread over a longer period of time because of the

complexity involved in completing an M&A transaction which can run into years. An M&A

passes through many stages before it is completed hence one M&A news can affect the

relationship between price and other variable every time there is an announcement about that the

same M&A event. Considering this fact, the estimation window for the project is taken as (DAY-

30-210). This means that to derive at the normal relationship between variables, we consider the

period of 180 days from 30 days prior to the event date.

3.3 Abnormal Return

Abnormal return is defined as the extra return which an investor makes because of the event

taking place. To calculate abnormal return, the project first calculated normal return. Using event

and estimation window we compute the abnormal return.For firm iand event datet the abnormal return is

(|) (1)

Where

= Abnormal Return of Stock i at time t,

= Actual Return of Stock i at time t,

(

|) = Expected Normal Return of Stock i at time t.

To calculatewe first need to estimate the alpha () and beta () coefficient for individual

stocks based on the market model.

(2)


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Where the estimation period is event days -30 through -210.

Based on the alpha ( ) and beta ( estimated obtained from equation 2, the expected returns

during the event window period of the acquiring firms are calculated on following model.

() () (3)

Where

() Is the expected stock return during Event Window (Day -15, Day +15)

Is the intercept of stock return and market return during the estimation window (i.e. Day-30-

210)

Is the coefficient of stock return and market return during estimation window (i.e. Day-30-

210)

Is market return during event window (Day -15, Day +15)

To calculate the average abnormal returns for each sub-sample j and time t, the abnormal returns

of the individual stocks in sub-sample j, of size J, are averaged.

(4)

To calculate the cumulative abnormal returns (CAR) of the sample, we aggregate the daily

sample abnormal return (AR) over a specified number of days in the test period.

(5)

Where t and T is specified to examine the cumulative effects of the event over a certain time

period. The Project uses multiple event windows to check the robustness of the result.


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3.4 Z - Test

Z test was used to check if the abnormal return during the event window were significantly

different. The test was done at 90% interval to check the significance of abnormal return during

Day -15 to Day +15.

Where, is the sample mean of abnormal return

is the population mean and

For Abnormal Return: is considered zero (0)

Abnormal Volume: is considered zero (0)

is standard error of the mean i.e. / n


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4.0 Result and analysis

The empirical test has to be still performed on the sample size of 30 companies that has been

included to complete the research. The list of 30 companies are mentioned in the annexure 1.

The company has been chosen on the basis of availability of their announcement date available

on the sebi website and the data of the companies available on the NSE website. The companies

mainly include midcap stocks. These are the companies which can be easily acquired as they

have low capital base. These would term out to be good research material since they have the

high potential to get effected by the change in ownership.

The general study of the data suggest that the prices have been quite volatile near to the date of

announcement. Some stocks have advanced while some have declined too.

5.0 GRAPHS

Below mentioned are the charts of the general change in the stock prices of the companies.

CAMBRIDGE

0

20

40

60

80

100

120

25-Sep-0714-Nov-07 3-Jan-08 22-Feb-08 12-Apr-08 1-Jun-08 21-Jul-08 9-Sep-08 29-Oct-08 18-Dec-08


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SAHPETRO

TAIWAL CHEMICALS

0

5

10

15

20

25

30

35

40

14-Nov-07 3-Jan-08 22-Feb-08 12-Apr-08 1-Jun-08 21-Jul-08 9-Sep-08 29-Oct-08 18-Dec-08

0

200

400

600

800

1000

1200

1400

14-Nov-07 3-Jan-08 22-Feb-08 12-Apr-08 1-Jun-08 21-Jul-08 9-Sep-08 29-Oct-08 18-Dec-08 6-Feb-09


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SPICE

0

5

10

15

20

25

30

35

12-Apr-08 1-Jun-08 21-Jul-08 9-Sep-08 29-Oct-08 18-Dec-08 6-Feb-09 28-Mar-0917-May-09 6-Jul-09


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6.0 TABLE SHOWING ABNORMAL RETURN RESULTS

CAMBRIDGE

Date

Close

Price srl no

ExpectedStock

Return

Abnormal

Stk return

6-Nov-08 71.05 -20 -0.46336 1.10075036

5-Nov-08 70.6 -19 -0.80802 1.23476477

4-Nov-08 70.3 -18 -0.68671 3.16484205

3-Nov-08 68.6 -17 -0.51593 1.25014323

31-Oct-08 68.1 -16 -0.13538 2.69562086

29-Oct-08 66.4 -15 0.057761 0.24435357

28-Oct-08 66.2 -14 -0.3543 1.88804665

27-Oct-08 65.2 -13 -0.47495 -0.961177224-Oct-08 66.15 -12 -0.10615 -2.9707752

23-Oct-08 68.25 -11 -0.08741 0.2341437

22-Oct-08 68.15 -10 -0.57149 -0.0844863

21-Oct-08 68.6 -9 -0.54374 1.27795221

20-Oct-08 68.1 -8 -0.69443 0.76790421

17-Oct-08 68.05 -7 -0.40641 -0.8272596

16-Oct-08 68.9 -6 -0.83661 2.16014275

15-Oct-08 68 -5 -0.46268 0.46267881

14-Oct-08 68 -4 -0.30646 3.18089442

13-Oct-08 66.1 -3 -0.64737 -0.2521849

10-Oct-08 66.7 -2 -0.34341 -2.7793211

8-Oct-08 68.85 -1 -0.80692 5.84124943

7-Oct-08 65.55 0 -0.38527 5.43334309

6-Oct-08 62.4 1 -0.38643 5.43693726

3-Oct-08 59.4 2 -0.25377 5.29355424

1-Oct-08 56.55 3 -0.03232 5.04624452

30-Sep-08 53.85 4 -0.22585 10.2360612

29-Sep-08 48.95 5 -0.41068 10.4106756

26-Sep-08 44.5 6 -0.21148 10.2238394

25-Sep-08 40.45 7 -0.02755 -3.7774481

24-Sep-08 42.05 8 -0.15794 0.15794357

23-Sep-08 42.05 9 -0.27591 -3.2791351

22-Sep-08 43.6 10 -0.46708 1.62717274


23/30

SAHPETRO

Date Close srl no

Expected

Stock

Return Abnormal Stk return20-Nov-08 33.85 -20 0.021139 -0.31568998

19-Nov-08 33.95 -19 0.810223 -0.21763084

18-Nov-08 33.75 -18 -3.19243 3.78855885

17-Nov-08 33.55 -17 -2.32625 2.92594702

14-Nov-08 33.35 -16 -0.73411 0.73410625

12-Nov-08 33.35 -15 -0.67352 1.12532703

11-Nov-08 33.2 -14 -1.57442 1.27411661

10-Nov-08 33.3 -13 -1.18862 1.64110829

7-Nov-08 33.15 -12 -1.10874 3.74031644

6-Nov-08 32.3 -11 -0.54322 -0.22482991

5-Nov-08 32.55 -10 -0.62443 -2.50056647

4-Nov-08 33.6 -9 -0.51577 0.36718621

3-Nov-08 33.65 -8 -1.12593 6.11812642

31-Oct-08 32.05 -7 -0.94425 6.02621889

29-Oct-08 30.5 -6 -0.88845 10.9967499

28-Oct-08 27.7 -5 -0.81458 10.9537463

27-Oct-08 25.15 -4 -1.58162 11.6472696

24-Oct-08 22.85 -3 -0.77721 10.8976882

23-Oct-08 20.75 -2 -0.63707 10.7166425

22-Oct-08 18.85 -1 -0.49953 10.7334461

21-Oct-08 17.1 0 -0.80446 20.8044613

20-Oct-08 14.25 1 -1.05823 21.3113964

17-Oct-08 11.85 2 -0.81584 15.8643808

16-Oct-08 10.3 3 -0.73389 -8.51721299

15-Oct-08 11.35 4 -0.97832 -5.2200317

14-Oct-08 12.1 5 -0.38042 13.4645302

13-Oct-08 10.7 6 -0.96753 16.6432031

10-Oct-08 9.25 7 -0.75555 -2.89028132

8-Oct-08 9.6 8 -0.83328 -2.19702058

7-Oct-08 9.9 9 -0.86414 3.98914228

6-Oct-08 9.6 10 -0.64309 -18.3442544


24/30

TAIWALCHEM

Date

Close

price srl no

Expected Stock

Return

Abnormal Stk

return29-Sep-08 15.25 -20 0.408177 -2.0210798

26-Sep-08 15.5 -19 -0.1523 2.801304802

25-Sep-08 15.1 -18 2.948354 -11.4332022

24-Sep-08 16.5 -17 -1.53768 4.662676638

23-Sep-08 16 -16 -0.82061 0.199489175

22-Sep-08 16.1 -15 -0.38708 1.012083456

19-Sep-08 16 -14 -1.58847 1.588465714

18-Sep-08 16 -13 -1.17202 2.118395406

17-Sep-08 15.85 -12 2.038885 -7.41201918

16-Sep-08 16.75 -11 -1.36866 8.740449964

15-Sep-08 15.6 -10 -0.38138 -6.48429074

12-Sep-08 16.75 -9 1.678695 -0.47023551

11-Sep-08 16.55 -8 0.781357 -3.141239

10-Sep-08 16.95 -7 -0.68362 5.637181423

9-Sep-08 16.15 -6 -1.61194 -1.39106571

8-Sep-08 16.65 -5 0.943064 1.834713913

5-Sep-08 16.2 -4 -2.94397 -0.62745851

4-Sep-08 16.8 -3 -2.41015 1.81843183

2-Sep-08 16.9 -2 -1.98238 1.394147011

1-Sep-08 17 -1 0.396113 -0.10112755

29-Aug-08 16.95 0 -0.0887 4.07643087

28-Aug-08 16.3 1 -1.71982 -3.2364529

27-Aug-08 17.15 2 -0.56904 6.433241697

26-Aug-08 16.2 3 0.163153 6.415793927

25-Aug-08 15.2 4 0.543858 6.122808278

22-Aug-08 14.25 5 0.434543 -7.9020756

21-Aug-08 15.4 6 -1.22236 7.796757034

20-Aug-08 14.45 7 -2.66764 -5.87666152

18-Aug-08 15.8 8 0.804667 2.801890224

14-Aug-08 15.25 9 0.751677 -1.40314236

13-Aug-08 15.35 10 -0.66343 2.996765952


25/30

BRFL

Date Close no Normal

Abnormal

Stk return6-May-09 170.5 -20 73.34522 -74.1885

5-May-09 171.95 -19 7.770671 -7.15628

4-May-09 170.9 -18 3.521597 -3.43375

29-Apr-09 170.75 -17 8.393034 -5.90204

28-Apr-09 166.6 -16 26.32826 -21.6471

27-Apr-09 159.15 -15 -24.7238 23.05555

24-Apr-09 161.85 -14 18.04139 -18.0414

23-Apr-09 161.85 -13 3.748512 -2.3705

22-Apr-09 159.65 -12 18.64846 -19.61

21-Apr-09 161.2 -11 6.496478 -6.83651

20-Apr-09 161.75 -10 -16.388 17.04138

17-Apr-09 160.7 -9 -16.2188 16.6563

16-Apr-09 160 -8 40.55097 -41.9073

15-Apr-09 162.2 -7 48.46887 -44.7273

13-Apr-09 156.35 -6 8.494265 -7.97996

9-Apr-09 155.55 -5 7.127498 -8.58458

8-Apr-09 157.85 -4 17.27849 -15.044

6-Apr-09 154.4 -3 9.457931 -9.10044

2-Apr-09 153.85 -2 13.25762 -11.1674

1-Apr-09 150.7 -1 11.94165 -10.426

31-Mar-09 148.45 0 -13.4505 16.32649

30-Mar-09 144.3 1 -9.58318 9.237881

27-Mar-09 144.8 2 6.101438 -7.05903

26-Mar-09 146.2 3 31.48026 -31.651

25-Mar-09 146.45 4 57.44652 -51.973

24-Mar-09 138.85 5 39.14799 -43.1577

23-Mar-09 144.65 6 45.70687 -39.7362

20-Mar-09 136.5 7 5.349386 -3.36956

19-Mar-09 133.85 8 38.2896 -37.9146

18-Mar-09 133.35 9 4.255003 -2.34442

17-Mar-09 130.85 10 22.42484 -26.247


26/30

MAYTAS INFRA

Date Close srl no

Expected

Stock Return

Abnormal Stk

return6-Oct-09 132.7 -20 -0.41906 5.40324

5-Oct-09 126.4 -19 -0.70691 -1.87498

1-Oct-09 129.75 -18 0.971838 -3.3053

30-Sep-09 132.85 -17 -0.83614 1.403887

29-Sep-09 132.1 -16 0.158151 -2.3063

25-Sep-09 135 -15 0.003211 5.014292

24-Sep-09 128.55 -14 -0.31364 -1.9297

23-Sep-09 131.5 -13 -0.53505 -3.47955

22-Sep-09 137 -12 -1.09566 3.449038

18-Sep-09 133.85 -11 0.303063 -1.55721

17-Sep-09 135.55 -10 0.293014 -2.77503

16-Sep-09 139 -9 -0.78115 -1.33153

15-Sep-09 142 -8 0.974442 4.055144

14-Sep-09 135.2 -7 -0.17471 5.184421

11-Sep-09 128.75 -6 -0.32835 -2.09681

10-Sep-09 131.95 -5 0.205314 -3.07613

9-Sep-09 135.85 -4 0.452288 -3.72748

8-Sep-09 140.45 -3 0.870287 -3.36942

7-Sep-09 144.05 -2 -0.24375 5.274742

4-Sep-09 137.15 -1 -0.64572 5.661036

3-Sep-09 130.6 0 0.559051 4.467085

2-Sep-09 124.35 1 0.093138 4.932199

1-Sep-09 118.4 2 0.576081 4.435005

31-Aug-09 112.75 3 0.531544 4.498731

28-Aug-09 107.35 4 -0.23336 5.2725

27-Aug-09 102.2 5 0.477682 4.558289

26-Aug-09 97.3 6 0.707426 3.245566

25-Aug-09 93.6 7 0.625037 4.425468

24-Aug-09 89.1 8 -0.65065 5.659491

21-Aug-09 84.85 9 -0.68133 1.453297

20-Aug-09 84.2 10 0.106934 -0.7559


27/30

7.0 ANALYSIS

After seeing the performance of stock prices movement at the end of the chart which suggest that

the period in which in the mergers took place we can conclude that mergers had a positive

impact on the stock prices of the companies. But just by observation, one cannot infer the results

so , empirical study has been conducted. The event study process 1st phase has been done in

which all the companies intercept and slope has been found out. And on the basis of that

companies abnormal return has been found out.

As per our study we can see that Cambridge industries have resulted in substantial price

movement and its effect is shown through high abnormal return of 5.43%Similarly results for

other companies have also been found out. Few companies result have been mentioned below

suggesting high abnormal returns in wake of m&a event .

Sahpetro resulted into very sharp rise in stock price and its abnormal return has been registered

to be around 20.80%.

Taiwal Chemicals has resulted into abnormal return of 4.07%.

BRFL has resulted into abnormal return of 16.32%.

Maytas Infra has resulted into abnormal return of 4.467%.


28/30

8.0 CONCLUSION-

By seeing the first phase of the study we can conclude that in most of the instances , The M&A

event brings substantial hike in the prices of the target company. The graphs and the table

showing abnormal returns substantiate our point. But to make an inference on the basis of only

one phase of event study would be too early. There are some case where the stock prices have

declined too. So the conclusion is still in the half way the result of the full analysis will be

presented in the next report.


29/30

9.0 ANNEXURE

List OF COMPANIES

Cambridge

melstar

sahpetro

shriram

tainwalchen

alfalevel

brfl

gtoffshore

spicemoblie

goldentobaco

maytas

uttam

boc

utv

aztecsoft

basf

broadcast

genesys

hindoil

investmart

thomascook

zandu

SIEMENS

HCL Technologies

csoft

softpro


30/30

10.0 References

1. http://www.eventvestor.com/index.php2. PengCheng Zhu & Shavin Malhotra, Announcement Effect & Price Pressure: An

Empirical Study of Cross-Border Acquisition by Indian Firms retrieved from

http://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdf

3. Dirk Hackbarth & Erwan Morellec Stock Returns in Mergers and Acquisitionsretrieved fromhttp://www.vgsf.ac.at/activities/morellec.pdf

4. Sara B. Moeller, Frederik P. Schlingemann and Ren M. Stulzc Firm size and the gainsfrom acquisitions retrieved fromhttp://jfe.rochester.edu/03289.pdf

5. Anand M. Vijh and Ke Yang The Acquisition Performance of S&P 500 Firmsretrieved from

http://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdf
http://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdfhttp://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdfhttp://www.vgsf.ac.at/activities/morellec.pdfhttp://www.vgsf.ac.at/activities/morellec.pdfhttp://www.vgsf.ac.at/activities/morellec.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://jfe.rochester.edu/03289.pdfhttp://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdfhttp://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdfhttp://www.fma.org/Orlando/Papers/AcquisitionPerformanceofSnP500Firms_FMA.pdfhttp://jfe.rochester.edu/03289.pdfhttp://www.vgsf.ac.at/activities/morellec.pdfhttp://www.eurojournals.com/IRJFE%20ISSUE13%20peng.pdf

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Impact of Mergers on Stock Prices

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