Mergers & Acquisitions : Abnormal returns in the pharmaceutical industry
This thesis is written within the field of finance and covers the Merger & Acquisition (M&A) phenomenon within the pharmaceutical industry. The purpose with this thesis is to examine the pharmaceutical industry and, with some key acquisitions done over the last five years, see if our hypothesis about no abnormal returns after an M&A to the buying firm, holds within the industry.The model used is the Arbitrage pricing model, incorporating the variables; S&P 500, ^DRG, US inflation and stock volume traded on NYSE, to calculate expected returns for a period of 48 months after the M&A’s. Furthermore we use AMEX pharmaceutical index (^DRG) and Standard & Poor 500 (S&P 500) as our base for measuring post-M&A performance 48 months after the M&A’s.The hypothesis holds three out of six times when using the indices ^DRG and S&P 500 as a benchmark and all of the times when using the calculated expected returns as benchmark.The calculated estimates turned out to be a bit too optimistic given the time of the M&A’s where the market had grown substantially over a long period and was at its peak just before it plummeted in the early 2000’s. Neither of the companies reached their estimated returns, nor did they manage to recover from the downfall to their initial stock value at the time of the merger.
School:Högskolan i Jönköping
Source Type:Master's Thesis
Keywords:mergers acquisitions pharmaceutical industry shareholders arbitrage pricing theory share performance pfizer bristol myers squibb and glaxosmithkline
Date of Publication:06/09/2006