Market Reactions to Merger, Acquisition, and Divestiture Announcements in the Media Industries

Abstract

There has been extensive restructuring in the media industries in recent times. This article examines the effects of large media restructuring transactions on the value of firms engaging in such transactions. It considers all media restructuring transactions with a value of over $1 billion between 1997 and 2008—a time period that included 1 of the largest waves of mergers and acquisitions (M&A) activity in industrial history, and was marked in media by transformative changes in the industry due to digital technology and the loosening of ownership restrictions under the Telecommunications Act of 1996. Over that time period, 57 M&A transactions with a total value of $675 billion and 65 divestitures with a total value of $338 billion were identified. This article employs event-study methodology to calibrate the impact of these restructurings on firm value. Over time, the market was cautious about the ability of media firms to launch successful mergers or acquisitions, with losses for the media acquirers larger than those in cross-industry studies. This is even more pronounced when the acquirer is a non-media firm. Alternatively, divestitures yield positive results for both buyers and sellers. Recognizing the impact that restructuring has on firms, this work provides insights for understanding the market evaluation of future restructuring transactions.