Do Independent Directors Matter

1

• New Evidence and Perspectives on Mergers
• By
• Gregor Andrade, Mark Mitchell, and Erik Stafford
• Table 1 Compared to the 70s and 80s, during the
  90s
• Less cash offers.
• More stock offers.
• Less hostile bids.
• More acquisitions in same industry.

2

• Table 2 Mergers come in waves, but each wave is
  different in terms of industry composition.
• Industry-level shocks
• Technological innovations which can create excess
  capacity and need for consolidation.
• Supply shocks such as oil prices.
• Deregulation.
• Deregulation during the 90s Banks and thrifts,
  Utilities, Telecommunications.

3
Table 3 Combined returns during 1973-1998
1.8 Target returns during 1973-1998 16.0 Bi
dder returns during 1973-1998 -0.7
4
Table 4 Announcement Period Abnormal Returns
during 1973-1998 Stock No Stock Large
Target Combined 0.6 3.6 3.0 Target 13.0
20.1 13.5 Acquirer -1.5 0.4 -1.5
5
Table 6 Long-Term Abnormal Returns Signal to
noise ratio is very large when considering
long-term (more than a few months). Difficult to
precisely measure abnormal returns over the long
horizon Pages 13-14.
6
Firm Size And The Gains From Acquisitions By Sara
Moeller, Frederik Schlingemann, Rene
Stulz 12,023 acquisitions by publicly listed
U.S. firms during 1980-2001.
7
Table 4 Acquiring Companys Announcement Period
Abnormal Returns Stock Cash All Publicly-held
Targets (2,642 acquisitions) -2.02 .36 -1.02
(-183M) (-33M) (-128M) Small
Acquirers -.75 2.84 .92 Large
Acquirers -2.45 -.42 -1.70
8
Table 4 Acquiring Companys Announcement Period
Abnormal Returns Stock Cash All Privately-hel
d Targets (5,583 acquisitions)
1.49 1.21 1.50 (-9M) (1M) (-3M) Sma
ll Acquirers 2.70 1.52 2.14 Large
Acquirers .50 .81 .70
9
Table 4 Acquiring Companys Announcement Period
Abnormal Returns Stock Cash All Full Sample
(12,023 acquisitions) .15 1.38 1.10 (-8
0M) (5M) (-25M) Small Acquirers 2.03 2.17
2.32 Large Acquirers -.96 .69 .08
10

• Why are returns to U.S. acquirers NEGATIVE (from
  acquiring public U.S. targets)?
• Rolls Hubris Hypothesis.
• If acquisition is financed with stock Negative
  signal.
• No attractive internal investment opportunities
  Negative signal.
• Acquiring managements empire-building
  tendencies.

11

• Why are returns to LARGE U.S. acquirers
  particularly NEGATIVE (from acquiring public U.S.
  targets)?
• Rolls Hubris Hypothesis Large firm managers
  more prone to hubris given their past successes.
• Large firms may have more resources for paying.
• No attractive internal investment opportunities
  Large firms more likely to have exhausted growth
  opportunities since further along their life
  cycle.
• Incentives of smaller firms managers better
  aligned perhaps through stock ownership.

12

• Why are returns to U.S. acquirers more NEGATIVE
  from acquiring public U.S. targets compared to
  private targets?
• Liquidity constraints for private company owners.
• Greater bargaining ability of public
  shareholders.