Corporate takeovers in the US oil and gas sector

Abstract

We examine corporate takeovers in the U.S. oil and gas sector from 1990 to 2008. We test the hypotheses that energy prices and reserves influence takeovers in the energy market for corporate control. We employ these methods: 1. capital asset pricing model, 2. regression analysis, and 3. Granger causality test. Our results show that oil reserves cause takeover deals and affect the value of the merger. High oil prices propel management to acquire oil firms as well as affect the target value. However, the reverse cause-effect mechanism occurs for natural gas prices. That is, takeover activity causes gas prices to decrease. Acquirers are motivated to purchase reserves; whereas, targets are disposed to sell based on energy prices. Hence, our findings imply that countries can consider policies, which address the motivations of the oil and gas industries to facilitate well-functioning takeover markets.