"Wealth Effects of Horizontal Acquisitions on Rivals of Public, Private and Subsidiary Targets"

Abstract

This study investigates the wealth effects of 182 European horizontal acquisitions in the manufacturing industry on rivals of the merging firms, thereby distinguishing between acquisitions of public, private and subsidiary targets. Based on a case-by-case investigation of the European Commission, over 800 publicly-listed rivals were identified. The event study around acquisition announcement indicates that especially rivals of private targets gain upon acquisition announcement but not rivals of public or subsidiary targets. We hence contribute to the acquisition literature by highlighting that acquisitions of private and of subsidiary targets, which until now have been treated as a single category, have different effects on rival returns. We argue that motives for acquiring a private, public or subsidiary target are highly distinct and consequently affect rival firms differently. Compared to acquirers of private companies, acquirers of publicly-traded firms are prone to agency risks and hubris, while acquirers of subsidiary targets are mainly buying poorly performing lines of business. Different motives explain differences in wealth effects.