Subject Code : MPF753
Assignment Task:

Unit Learning Outcome:

ULO 1: Students will use the given assignment project to demonstrate their level and depth of learning in terms of both appropriateness as well as the accuracy of the financial analysis tools/techniques used.
 
ULO 2: Students will have to use information sources such as online financial databases, and also use electronic spreadsheets and other technologies as appropriate to collate, analyse and disseminate project output. 

Mergers and Acquisitions Case study:

PART A: Background of M&As:

Assessment objective:
This part assesses (1) your understanding of the calculation of stock returns and ability to analyse the Australian Mergers and Acquisitions (M&As) market (Topic 4 Learning outcomes) and (2) your ability to calculate and compare percentage stock returns (Topic 5 Learning Outcome) 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’ 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.

the acquirer to the target company per share of stock

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., a 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., a sum of daily returns from T-30 
to T-1

c) three trading days after the takeover announcement, i.e., a 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., a sum of daily returns from T to T+30

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.


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 ability to identify, compare and contrast the stock returns using the results of empirical studies (Topic 4 and 5 Learning Outcome).
 
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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