An Analysis of the Short Term Shareholder Benefits in Mergers and Acquisitions and the Wealth Effects of Various Bid Characteristics: Evidence from Australia

This study explores the short term effects of Mergers and Acquisitions (M&A) in Australia by examining the cumulative abnormal returns earned over a five day event window by the combined, target and acquiring firms. The study examines the wealth effects on the firm of the four bid characteristics of diversification, hostility, method of payment and relative size. Results show that mergers are wealth-creating events for the combined, target and acquiring firms. The ideal merger for a target firm is where the target is small relative to the acquiring firm, and the ideal merger for the acquiring firm is with a target of 30% of its own size which is diversifying and not hostile. The findings which shed new some new insights into M&A have implications for investors, advisers and management.