Global Mergers and Acquisitions-An event study analysis on Tata Chemicals and British Salt.

Abstract

This study presents the effect of Global Merger on stock prices of Tata Chemicals. We examine shareholder wealth gains of Tata Chemicals that acquired British Salt in Dec 2010. This study analyses global merger by Tata Chemicals in UK and the returns to shareholders as a result of the merger, using the event study methodology (Brown and Warner, 1980, 1985; and MacKinlay, 1997).We find that foreign acquirers experience positive and significant abnormal returns of nearly two percent over days (- 10,+ 10) when they acquire target in the UK. To capture the impact on stock prices as a result of global M&A using the event study methodology. Using the single-factor model the study finds that the average cumulative abnormal return (CAR) of the Tata Chemicals is positive and substantial. These results are statistically significant also. Thus, the bidder firm got significant positive abnormal returns. The single-factor model finds that the combined CAR is positive, significant and substantial. The bidder firm created a wealth of Rs 33.73 million in a one day window (single-factor model) as a result of the merger. The merger announcements of Tata Chemicals have positive and significant shareholder wealth effect both for bidder and target firm. The aim is to understand the shareholder wealth effects of merger. *Using the single-factor model, the study finds that the average cumulative abnormal return (CAR) of the Tata Chemicals is positive and substantial. These results are also statistically significant. Thus, the bidder firm got significant positive abnormal returns. *The single-factor model finds that the combined CAR for the target firm is positive, significant, and substantial. The bidder firm created a wealth of Rs 33.73 million in a one-day window (single factor model) as a result of the merger.