Is The Mergerstat Control Premium Overstated?
This paper examines a random sample of 100 acquisitions of U.S. target firms acquired between the first quarter of 1999 through the first quarter of 2003 comparing the ``Control Premium" reported by Mergerstat/Shannon Pratt's Control Premium StudyTM to a comparable ``Abnormal Return" calculated using established academic ``event study" methodology. One of the differences between the Mergerstat methodology and the event study methodology is the removal of general market movements from the total stock return to arrive at the abnormal return while no such adjustments are made to the Mergerstat control premium.The ``Control Premium" reported by Mergerstat averaged 49.02% compared to 53.64% calculated using the event study methodology, a difference of -4.62%. During the event periods, the S&P 500 Index experienced a -4.45% average change, accounting for 96% of the difference in average result between the two methods. However, when the sample is split between up and down market periods, anomalies appear.An analysis of the up market periods reveals an average event study abnormal return of 59.97% compared to a 34.95% average Mergerstat Control Premium. This 25% difference is explained by Mergerstat's methodology understating the ``run-up" of target firms' stock prices prior to the acquisition announcement.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 3 (2008)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/jbvela|
When requesting a correction, please mention this item's handle: RePEc:bpj:jbvela:v:3:y:2008:i:1:n:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If references are entirely missing, you can add them using this form.