Discussion of Masulis-Swan-Tobiansky: Do Wealth Creating Mergers and Acquisitions Really Hurt Acquirer Shareholders? Wuhan, July 2011 Moqi Xu INSEAD/LSE

Do acquisitions create value for acquirers? Value prior to bid Market reaction Value after announcement Acquirer market value (USD millions) Previous literature: Acquirer returns are insignificant or negative (Betton-Eckbo-Thorburn 2008) Why? Roll 1986: Hybris Cai-Song-Walkling 2011: anticipation Savor-Lu 2009: Identify synergies with withdrawals

This paper: Signaling & revelation bias Value prior to bid Signalling & revelation Value creation Value after announcement How to disentagle? Acquirer market value (USD millions) - +

Exogenous transaction failure Value prior to bid Value creation Value after announcement Value after failure Exogenous failure Signalling & revelation Acquirer market value (USD millions)

Value creation: Market timing or synergies? Value prior to bid Value after announce- ment Value after failure Exogenous failure Premium Target market value (USD millions) Evidence for value creation: Value should rise if premium was driven by market timing Acquirer captures most of synergies in USD terms (627) Value creation

Value creation: Market timing or synergies? Value prior to bid Value after announcement Value after failure Exogenous failure Premium Target market value (USD millions) Evidence for value creation: larger drop for failed stock bids Value should rise if premium was driven by market timing Market efficiency? Numbers?

Signaling and revelation „Deliberately timing good news of the bid announcement to coincide with the release of bad news“ (Bhagat et al.) „Bid itself typically releases bad news about an acquirer:...empire-building tendencies......run-out of profitable internal growth opportunities......stock is relatively overvalued“ „Long history of generally successful bids...,...announcement is no surprise“ „stock financed acquisitions represent new equity issues... stock may be preferred... when it is overvalued“ „“initial bidder announcement returns could be downward-biased because of the likelihood of failure... subsequent entry of competing bidders“ How to disentangle from deal failure? In Myers-Majluf, the market is aware of this and demands a discount – in the context of M&A a premium? Ahern & Sosyura: acquirers try to release good news If the bidder makes many acquisitions, isn‘t all information already revealed? (30% of sample) That applies to this acquisition too: value destruction, not a signal

Exogeneity of failure „“initial bidder announcement returns could be downward-biased because of the likelihood of failure... subsequent entry of competing bidders“ „market appears able to predict deal failure for targets, but not for bidders“ Why separate criteria for exogeneity? These are the same transactions Are these reasons really exogenous? Regulations, competing offers

Balance Long introduction with detailed argumentation Literature review with results Very short hypothesis development section Equations and notation after the empirical results Short and not very prominent discussion on target returns Numbers were not clear to me Short introduction with main idea and clear discussion of contribution Detailed argumentation to motivate Introduce notation and equations early to benefit in hypothesis development and results section Derive hypothesis directly from arguments Cut literature review Expand discussion on target returns and emphasize contribution

Sample International sample: targets from Australia, Canada, UK and the US Public acquirers (no restriction on origin?) Sample of 4,606 transactions Excludes mixed payment transactions Seems very small, maybe because of the mixed payment exclusion, maybe other reasons? Does the origin make a difference? (Especially vs. Malmendier et al) Where are the acquirers from?

Technical CAR with CRSP index, but returns from Datastream? „due to the diversity of firms... do not use an equal-weighted matching portfolio.. instead, use an equal-weighted index obtained from CRSP“ Why are the control variables not consistent across specifications? Why separate bidder and target characteristics? This is information available to everybody Some control variables seem to be missing, such as hostility, lock-up agreements etc. Not all quoted papers are in the list of references