The impact of large acquisitions on the share price and operating financial performance of acquiring companies listed on the JSE

Abstract

A KPMG survey in London found that 53% of mergers and acquisitions destroy shareholder value (Brewis, 2000). Andrade, Mitchell and Stafford (2001) state that two of the main objectives in corporate finance research are the measurement of value creation or destruction through mergers and acquisitions, and how this value creation or destruction is distributed between the acquiring company and the target company. The aim of this research is to determine whether large acquisitions, concluded in 2001, 2002 or 2003 add value to acquiring companies listed on the JSE Limited (“the JSE”). The researchers examined the share price performance of the acquiring company around the acquisition announcement date and the impact on operating financial performance in the two years subsequent to the acquisition. These two most popular measures are used to provide a comprehensive analysis of the wealth effects of large acquisitions on a sample of South African acquiring companies. In contrast to the majority of international studies that only consider mergers and tender offers where both the acquirer and the target are publicly traded, this study considers all mergers and acquisitions, specifically including unlisted targets.