Analysis of Global Competitors’ Reaction to Mega Merger Announcements by an MNC: The Case of the Citicorp–Travelers Merger

Abstract

We investigate global competitors’ reaction to the Citicorp–Travelers mega merger announcement and find that global competitors, especially banks in Europe and the US, reacted positively to the Citicorp and Travelers’ merger announcement. The uncertainties created by the investigations into the merger proposal had significant impact on the competitors’ stock price. The announcement that the merger had been consummated also elicited a significantly positive reaction from the rivals following the resolution of uncertainties emanating from the regulatory challenges. The positive reaction by competitors suggests that the merger was a wealth-creating event for the large firms in the financial services industry. The expected benefits outweighed any competitive effects resulting from the merger. The competitors’ reaction was, however, not homogenous. Our cross-sectional analysis shows that the abnormal returns earned by the competitors were higher the larger the competitor. In addition, the abnormal returns were greater for the US rivals. That the global competitors reacted positively to the Citicorp–Travelers mega merger announcement is consistent with our assertion that the merger had ramifications that go beyond regulatory concerns in the US.