whattheexpectedsynergyvalueisandwhogetsthegains.
Thesecondistotrackmergersaftertheyoccurandevaluate
the success of firms in delivering synergy gains.
Market Assessments at Time of Merger
Synergyisastatedmotiveinmanymergersandacquisitions.
Bhide(1993)examinedthemotivesbehind 77 acquisitionsin
1985 and 1986 andreportedthatoperatingsynergywasthe
primary motive in one-third of these takeovers.
18 Domarketsbelievethesefirms?Ifsynergyisperceivedto
existinatakeover,themarketvalueofthecombinedfirms
afteramergerannouncementshouldbegreaterthanthesum
ofthemarketvaluesofthebiddingandtargetfirmspriorto
that same announcement.
whereV(AB)=ValueofafirmcreatedbycombiningAand
B
V(A) = Value of firm A, operating independently
V(B) = Value of firm B, operating independently
Studies of stock returns around merger announcements
generallyconcludethatthevalueofthecombinedfirmdoes
increaseinmosttakeoversandthattheincreaseissignificant.
Bradley,Desai,andKim(1988)examinedasampleof 236
interfirmtenderoffersbetween 1963 and 1984 andreported
that the combined value of the target and bidder firms
increased 7.48 percent ($117 million in 1984 dollars), on
average, on the announcement of the merger.