Impact of Merger Announcements on Shareholders’ Investments in India: Empirical Analysis in Selected Sectors

Abstract

This study makes an attempt to estimate the impact of horizontal mergers and acquisitions that have taken place in eight selected banks/companies of five Indian private sectors. An event study methodology has been used to explore the effects on the investments of shareholders of the selected company mergers that have taken place during the period 2010 to 2018. This study of stock market valuation and estimation of effective, abnormal and cumulative average abnormal returns in the context of Indian horizontal mergers has shown interesting findings. The results indicate that the mergers and acquisitions in the banking sector have shown a positive impact on the investors of both Kotak Mahindra bank, the bidder bank and ING Vysya bank, the target bank. Further, in the case of pharmaceutical sector the M&A has shown a positive impact on the investors of both bidder company (Torrent Pharma) and the target company (Unichem Laboratories Ltd). In case of first merger considered under the steel sector and in the Oil &Gas industry (only one merger), the negative impact is found both on the investors of bidder and target companies.In the rest of the mergers considered for this study, mixed reaction of both positive and negative returns has been found. The findings of this study provide input to both the acquiring and the target company shareholders. The acquiring company tends to overbid for acquiring the target company, therefore this process mostly benefits the target company’s shareholders at the cost of acquiring company shareholders. Hence, the management of the acquiring company should be vigilant.