New Evidence and Perspectives on Mergers By Gregor Andrade, Mark Mitchell, and Erik Stafford Table 1: Compared to the 70s and 80s, during the 90s: Less cash offers. More stock offers. Less hostile bids. More acquisitions in same industry. 1

Industry-level shocks: Table 2: Mergers come in waves, but each wave is different in terms of industry composition. Industry-level shocks: Technological innovations which can create excess capacity and need for consolidation. Supply shocks such as oil prices. Deregulation. Deregulation during the 90s: Banks and thrifts, Utilities, Telecommunications. 1

Combined returns during 1973-1998: 1.8% Table 3 Combined returns during 1973-1998: 1.8% Target returns during 1973-1998: 16.0% Bidder returns during 1973-1998: -0.7% 1

Announcement Period Abnormal Returns during 1973-1998 Table 4 Announcement Period Abnormal Returns during 1973-1998 Stock No Stock Large Target Combined 0.6% 3.6% 3.0% Target 13.0% 20.1% 13.5% Acquirer -1.5% 0.4% -1.5% 1

Long-Term Abnormal Returns Table 6 Long-Term Abnormal Returns Signal to noise ratio is very large when considering long-term (more than a few months). Difficult to precisely measure abnormal returns over the long horizon: Pages 13-14. 1

Firm Size And The Gains From Acquisitions By Sara Moeller, Frederik Schlingemann, Rene Stulz 12,023 acquisitions by publicly listed U.S. firms during 1980-2001. 1

Acquiring Company’s Announcement Period Abnormal Returns Table 4 Acquiring Company’s Announcement Period Abnormal Returns Stock Cash All Publicly-held Targets (2,642 acquisitions) -2.02% .36% -1.02% (-$183M) (-$33M) (-$128M) Small Acquirers -.75% 2.84% .92% Large Acquirers -2.45% -.42% -1.70% 1

Acquiring Company’s Announcement Period Abnormal Returns Table 4 Acquiring Company’s Announcement Period Abnormal Returns Stock Cash All Privately-held Targets (5,583 acquisitions) 1.49% 1.21% 1.50% (-$9M) ($1M) (-$3M) Small Acquirers 2.70% 1.52% 2.14% Large Acquirers .50% .81% .70% 1

Acquiring Company’s Announcement Period Abnormal Returns Table 4 Acquiring Company’s Announcement Period Abnormal Returns Stock Cash All Full Sample (12,023 acquisitions) .15% 1.38% 1.10% (-$80M) ($5M) (-$25M) Small Acquirers 2.03% 2.17% 2.32% Large Acquirers -.96% .69% .08% 1

Why are returns to U.S. acquirers NEGATIVE (from acquiring public U.S. targets)? Roll’s Hubris Hypothesis. If acquisition is financed with stock: Negative signal. No attractive internal investment opportunities: Negative signal. Acquiring management’s empire-building tendencies.

Why are returns to LARGE U. S Why are returns to LARGE U.S. acquirers particularly NEGATIVE (from acquiring public U.S. targets)? Roll’s Hubris Hypothesis: Large firm managers more prone to hubris given their past successes. Large firms may have more resources for paying. No attractive internal investment opportunities: Large firms more likely to have exhausted growth opportunities since further along their life cycle. Incentives of smaller firms’ managers better aligned perhaps through stock ownership.

Why are returns to U.S. acquirers more NEGATIVE from acquiring public U.S. targets compared to private targets? Liquidity constraints for private company owners. Greater bargaining ability of public shareholders.