Mergers and Acquisitions Case Study - Accounting and Finance Assignment Help

Assignment Task:

Part A: Background of M&As

Assessment objective: This part assesses

1) Your understanding of the calculation of stock returns and ability to analyze the Australian Mergers and Acquisitions (M&As) market.

2) Your ability to calculate and compare percentage stock returns and examine the companies’ acquisition performance.

Background Almost all great companies grow through M&As. Let me give you an example. If you like beer, chances are that you have tried at least some beers from Anheuser-Busch InBev SA/NV (AB InBev) because this company accounts for one-third of the world’s beer production. Few, however, know that AB InBev hailed from a small beer brewery in Leuven, Belgium, back in 1717. Since then, this brewery gradually became the largest in the world through acquiring dozens of beer breweries, including Anheuser- Busch in 2008 and SAB Miller in 2015. Figure 1 lists the important M&As which lead to the current AB InBev and Figure 2 lists the brands manufactured by AB InBev.

You are a financial adviser at private equity. Your company offers strategic financial services to high net worth clients. This assignment is intended to help you provide professional advice to the potential clients who are interested in understanding whether M&As present valuable investment opportunities. 

Normally, in an M&A, you have one acquirer (sometimes referred to as the bidder, buyer, purchaser) using some cash, stocks, or a combination of both, to acquire the majority of the stocks of a target company. 

Q1. How do M&A announcements affect stock returns of both the acquirer and the target? To answer this question, you need to identify two completed acquisitions involving one ASX-listed company acquiring another ASX-listed company and both acquisitions were announced between 01/01/2010 (If you REALLY want to analyze a takeover prior to 2010, PLEASE choose one that was announced after 01/01/2000!) and 01/01/2017. Note that some acquisitions take longer than others to complete. Please make sure you pick the acquisitions that you are most interested in. For each acquisition, please obtain the following information: 

1) Acquirer and Target company’s ticker on ASX; 2) The exact date of this acquisition announcement; 3) The offer price; 4) Both companies’ stock prices (adjusted price for the daily closing price) spanning from one calendar year before the announcement until the completion day. If in some cases, the target and/or the acquirer only become ASX-listed within one year of the announcement date, please download the stock price information since the company’s IPO day. 

Define the offer premium paid by the acquirer to the target company per share of stock. 

Suppose we denote T as the announcement day. If the announcement happens from Friday evening to Sunday night, you can treat T as the immediate following trading day. 

Please state clearly how you obtain acquirer’s offer price, then calculate the offer premium and calculate the Acquirer’s and target’s stock returns over the following intervals, respectively: 

a) one calendar year interval before the takeover announcement, i.e. the sum of daily returns from T-365 to T-1 (if one company was listed less than one year before the acquisition announcement, the earliest possible date is also fine).

b) one calendar month before the takeover announcement; i.e. the sum of daily returns from T-30 to T-1.

c) three trading days after the takeover announcement, i.e. the sum of THREE daily returns from T to T+2; (if T, T+1, or T+2 is a non-trading day, please use the following trading day return).

d) one calendar month after the takeover announcement, i.e. the sum of daily returns from T to T+30.

Please describe the offer premium and the two companies’ stock returns in a) to d) and explain what you learn from these results. Anything intuitive, counter-intuitive? For instance, you can describe the relationship between offer premium and target’s returns in c) and d). You can also discuss the two companies’ return trends in a) to b). You choose two takeovers, are the patterns of returns similar to each other? 

Q2. For the two acquirers, please calculate the abnormal long-term stock returns after the announcement of the takeovers. To this one end, examine the performance of the acquirer firms analysed in Question (1) 3 years after they announced the takeover (if you get less than 3-year data, please use the longest window possible). 

Please calculate the 3-year holding period return using: 

Three-year holding period return = [(P3 – Pt)/Pt] * 100 

P3 = the adjusted closing price on the 3-year anniversary of announcing the takeover. If the announcement day is March 1, 2015, then the 3-year anniversary is March 1, 2018; if the 3-year anniversary is a non-trading day, then use the adjusted closing price of the trading day immediately prior to the 3-year anniversary. Pt = the adjusted closing price on the announcement day. 

Next, calculate the 3-year holding period return for All Ordinaries Index by using the adjusted closing value on 1 March 2015 as Pt and adjusted closing value on its 3-year anniversary. Calculate the abnormal 3-year returns as the difference between the acquirer’s 3-year return and the All Ordinaries Index. 

Describe the long-term returns in Q2 in relation to the acquirers’ returns in Q1 c) and d). Discuss why these two acquisitions create or destroy acquirers’ value based on the long-term stock returns. You are required to provide justification(s) to support your analysis. 

Now pick ONE target company, suppose if you were the acquirer’s CFO before the acquisition, how would you go about making the offer price for the target? You can simply explain the reasoning/steps without using actual numbers.

PART B: The gains and losses of acquirer’s and target’s shareholder wealth Assessment objective:

This part assesses your understanding of the corporate financial policy implications (pros and cons) and the ability to identify, compare and contrast the stock returns using the results of empirical studies.

According to Andrade, Mitchell, and Stafford (2001), between 1973 and 1998, mergers in the USA seem to create shareholder value, with most of the gains accruing to the target company whereas the evidence on value creation for acquiring firm shareholders is not clear cut. 

One simple reason why most of the gains accruing to the target is that acquirers pay a sizeable offer premium. Please explain why acquirers on average pay a sizeable offer premium to the target company. Please explain why on average acquirers’ stock returns are much lower and sometimes even negative. 

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