Acquisitions & Market Performance : A study of the relation of takeover bids, premiums, and financing methods to the OMXS index
Scientific problem: In order to maintain a competitive position in the market, companies need to create an environment of sustained development. Growing companies basically have two choices: expand internally, known as organic growth, or expand externally by a merger or acquisition (M&A). It is widely known that in almost all acquisitions the price paid by the acquiring firm tends to be much higher than the market value of the target firm before the bid, this is called an acquisition premium. There are different ways of financing an acquisition, for example with cash or stock. Previous research within this topic have concluded the M&As follow the market, as well as premiums. Therefore, an assumption made by the authors is that when there is a boom in the market, the stock exchange quota-tion takes a certain movement and the number of acquisitions that are made increases, as well as the premiums paid, and further to check if the means of payment changes whether there is a bull or bear market.Purpose: “The general aim of this thesis is to examine acquisitions on the Swedish market in order to estimate the relation between the OMXS index and the number of acquisition bids, the acquisitions pre-mium and the means of payment.”Method: To investigate whether a relation between the OMXS and the amount of take-over bids, simple regression analyses was the preferred model, having the bids as being de-pendent upon market performance of the OMXS index. This way, any significant lag ef-fect, the time it takes for a bidder to present a bid offer, could be recognized and used as a benchmark. This model was carried on to the remaining questions as well; whether premi-ums are affected by the stock market, and which way the acquisitions was financed, cash or stock. The time period selected for data collection was 1994 to 2004, allowing the authors a wide enough time-span to interpret at least one bull, and one bear market. The model will be based upon secondary data of market quotes and a quantitative approach will be util-ized.Results: The authors claim that a relation between the number of acquisition bids and market movement does exist. This evidence shows that an important decision as the one of deciding whether or not to merge or acquire another firm, might not be as rational as tho-ught. Instead, it is influenced on the environment around it, with the OMXS index as one of them. When it comes to the two remaining questions, if premiums and means of pay-ment are affected by the OMXS index, the obtained answers do not provide a positive rela-tion. And thus, this thesis cannot support earlier studies that state that a relation is present.
School:Högskolan i Jönköping
Source Type:Master's Thesis
Keywords:mergers acquisitions corporate premium bids omxs index
Date of Publication:01/27/2006