Global Mergers and Acquisitions-An event study analysis onTata Chemicals and British Salt.

 

Amit Sharma

Research Scholar, IBM, CSJM University, CSJM University, Kanpur, India

 

ABSTRACT:

This study presents the effect of Global Merger on stock prices of Tata Chemicals. We examine shareholder wealth gains of Tata Chemicals that acquired British Salt in Dec 2010. This study analyses global merger by Tata Chemicals in UK and the returns to shareholders as a result of the merger, using the event study methodology (Brown and Warner, 1980, 1985; and MacKinlay, 1997).We find that foreign acquirers experience positive and significant abnormal returns of nearly two percent over days (- 10,+ 10) when they acquire target in the UK.

To capture the impact on stock prices as a result of global M&A using the event study methodology. Using the single-factor model the study finds that the average cumulative abnormal return (CAR) of the Tata Chemicals is positive and substantial. These results are statistically significant also. Thus, the bidder firm got significant positive abnormal returns. The single-factor model finds that the combined CAR is positive, significant and substantial. The bidder firm created a wealth of Rs 33.73 million in a one day window (single-factor model) as a result of the merger. The merger announcements of Tata Chemicals have positive and significant shareholder wealth effect both for bidder and target firm.

 

The aim is to understand the shareholder wealth effects of merger.

 

·         Using the single-factor model, the study finds that the average cumulative abnormal return (CAR) of the Tata Chemicals is positive and substantial. These results are also statistically significant. Thus, the bidder firm got significant positive abnormal returns.

·         The single-factor model finds that the combined CAR for the target firm is positive, significant, and substantial.

The bidder firm created a wealth of Rs 33.73 million in a one-day window (single factor model) as a result of the merger.

 

KEYWORDS: Merger and Acquisition, Event Study insert.

 

INTRODUCTION:

Mergers and acquisitions are a high risk form of business activity involving the collective annual investment of millions of rupees and affecting the working lives of millions of employees and the share holder’s wealth. It has been suggested that in the long term between 50-80 per cent of all mergers are considered to be financially unsuccessful (Marks, 1988b), and in terms of financial return, represent ‘at best an each way bet’ (Lorenz, 1986). Although mergers and acquisitions frequently fail to achieve the financial synergy or ‘2 + 2 = 5 effect’ (Hovers, 1973) initially expected, the popularity of this form of business activity has not diminished (Farrent, 1970; Jemison and Sitkin, 1986; Bruckman and Peters, 1987).

 


To analyze the impact of merger on shareholder wealth we used ‘event study methodology’ which measures the specific impact of corporate decisions on shareholder wealth. This technique is widely used in practice to assess the change in shareholder wealth generated by announcements of corporate events (e.g., security offerings, mergers, lawsuits, earnings).

 

The event study methodology is designed to investigate the effect of an event on a specific dependant variable. A commonly used dependent variable in event studies is the stock price of the company. The definition of such an event study will be ‘a study of the changes in stock price beyond expectation (Abnormal returns) over a period of time (event window). We attribute the abnormal returns to the effects of the event.’ The event study methodology seeks to determine whether there is an abnormal stock price effect associated with an event. From this, the researcher can infer the significance of the event. The key assumption of the event study methodology is that the market must be efficient. Given an efficient market, the effects of the event will be reflected immediately in the stock prices of the company. This will allow us to observe the economic effect of the event over a relatively short period.

 

Event Study Analysis:

An event study attempts to measure the valuation effects of a corporate event, such as a merger or earnings announcement, by examining the response of the stock price around the announcement of the event.

• One underlying assumption is that the market processes information about the event in an efficient and unbiased manner. • Thus, we should be able to see the effect of the event on prices.

 

The event that affects a firm's valuation may be: 1) within the firm's control, such as the event of the announcement of a stock split. 2) Outside the firm's control, such as a macroeconomic announcement that will affect the firm's future operations in some way.

 

Various events have been examined: –mergers and acquisitions –earnings announcements –issues of new debt and equity –announcements of macroeconomic variables –IPO’s –dividend announcements. –etc.

 

Event Study Design:

Time-line • The time-line for a typical event study is shown below in event time: - The interval T0-T1is the estimation period - The interval T1-T2 is the event window - Time 0 is the event date in calendar time - The interval T2-T3 is the post-event window - There is often a gap between the estimation and event periods.

 

 

We have to first decide on the event that we wish to investigate, and then collect data of company that had went through such an event. The data that we need includes the merger date (eg. date of a merger and acquisition event), the stock prices of the company before and after the event (eg -252(To - T1), -10(T1 - 0), 0 (Event day), +10(0 - T2).

 

Getting Parameter Estimates:

Alpha and Beta are the two parameter estimates and are determined in estimation period. Alpha is the intercept of the regression line and stands for risk free rate. Beta is the slop coefficient of the regression line and stands for systematic risk. In the formula, is the daily return of market index in estimation period and is the average daily return of market index in estimation period. Similarly, is the daily return of individual share price in estimation period and is the average daily return of individual share price in estimation period.

 

Getting the Abnormal Returns:

After Alpha and Beta have been obtained, the focus should be turned to Event Period, in which the daily expected return of individual share price can be obtained by replacing the parameter estimations to event period. The formula is shown in the following figure.

 

E(Rs)= α + β Rm

 

Daily expected return of individual share price can be determined by replacing the Alpha and Beta from estimation period here. Then the daily abnormal return in test period can be calculated by applying this equation. Please see the equation below:

 

ARs = Rs – E(Rs)

 

The daily abnormal return of the individual share price in test period equals the difference between the daily actual return in test period and the daily expected return in test period. After that, the cumulative abnormal return in test period and average abnormal return in test period can be calculated based on the daily abnormal return in test period. These are the typical required results for supporting further analysis of the event to see whether this event leads to a positive or negative effect on the value of the company.

 

Significance Test:

Sometimes a result value may only be generated by chance. The result value always needs to be tested to see whether it is statistically significant. This leads to the Significance Test. Basic method is to see whether the final value generated from significance test is located in the accept region. The formula is: the mean of the tested sample times the square root of the tested sample size then divided by the standard deviation of the tested sample. People normally use the 95% significance level and the accept region is from -1.96 to +1.96. If the final value is between -1.96 to +1.96, this result value will be called statistically significant.

 

Steps of Event Study:

1. Identify specific calendar event dates of a company and set it as an event date point.

2. Determine the length of both event period and estimation period.

3. Download the historical files of both share price and stock market index data. The data files should contain the calendar dates of both estimation period and event period.

4. Calculate the daily returns of both individual share price and market index data. Normally, daily returns are used, so the returns shall be daily returns. These are actual returns.

5. Calculate the two parameter estimates Alpha and Beta by using the return generating model to the data from the estimation period.

6. Get back to event period and use the two parameter estimates get from the estimation period to determine the (daily) expected return of the share price in event period.

7. Calculate the (daily) abnormal returns in event period and derive cumulative abnormal return and average abnormal return in event period.

8. Do significant test for the required results.

 

Company Profile:

Tata Chemicals Limited is a global company with interests in businesses that focus on LIFE: Living, Industry and Farm Essentials. The story of the company is about harnessing the fruits of science for goals that go beyond business.

 

This story began in Mithapur, Gujarat in western India with the creation of a plant that would raise a wealth of marine chemicals from the ocean, with the potential to touch human lives in many ways. From these humble beginnings a market-leading international business has been created, with operations across four continents.

 

Through its living essentials portfolio the company has positively impacted the lives of millions of Indians. Tata Chemicals is the pioneer and market leader in India’s branded Iodized salt segment. With the introduction of an innovative, low-cost, nanotechnology-based water purifier, it is providing affordable, safe drinking water to the masses.

 

Tata Chemicals is the world’s second largest producer of soda ash with manufacturing facilities in Asia, Europe, Africa and North America. The company’s industry essentials product range provides key ingredients to some of the world’s largest manufacturers of glass, detergents and other industrial products.   

 

The announcement made on 20th December, Brunner Mond confirmed its acquisition of Cheshire Salt Holdings Ltd (CSHL), the parent company of British Salt, following approval by competition authorities. CSHL was previously owned by LDC, the UK's leading mid-market private equity firm.

 

British Salt produces approximately half of the UK's pure salt used in applications ranging from food processing to chemicals production. The long history of British Salt in the manufacture of bulk commodity products will complement the similar experience of Brunner Mond and will strengthen the capability of the combined businesses.

 

“Martin Ashcroft, Managing Director of Brunner Mond, said: "I am delighted to be able to confirm completion of Brunner Mond's acquisition of British Salt. We are confident there will be strong benefits for both companies with new opportunities with customers around the world. Work will now commence on integrating activities where this makes sense to do. This is the beginning of an exciting new chapter for both businesses.

 

"Bill Thompson, Chief Executive Officer of British Salt, adds "This move provides a major opportunity to achieve growth in our chosen markets and to add value to our existing customers. I am confident we will be able to capture best practices from both businesses for our future combined success."


 

 

 

 

Data analysis:

Tata Chemicals- Market Index

Date

Adj Close

Return TATA Chem

Adj Close

Market Return BSE S&P 500

12/2/2009

256.7

0.039482

6717.3

0.0020108

12/3/2009

265.48

0.034203

6741.3

0.0035714

12/4/2009

267.88

0.00904

6720.3

-0.003117

12/7/2009

264.9

-0.01112

6666.1

-0.008059

12/8/2009

271.16

0.023632

6762.4

0.0144507

12/9/2009

268.43

-0.01007

6722.7

-0.005869

12/10/2009

266.37

-0.00767

6746.6

0.0035536

12/11/2009

264.73

-0.00616

6714.7

-0.004739

12/14/2009

264.77

0.000151

6699.2

-0.002304

12/15/2009

263

-0.00669

6603.8

-0.014246

12/16/2009

267.08

0.015513

6617.1

0.0020291

12/17/2009

274.69

0.028493

6633.3

0.0024391

12/18/2009

268.22

-0.02355

6577

-0.008482

12/21/2009

264.52

-0.01379

6536.3

-0.0062

12/22/2009

264.27

-0.00095

6586.1

0.0076267

12/23/2009

269.39

0.019374

6755.1

0.0256677

12/24/2009

270.7

0.004863

6798.4

0.0064084

12/29/2009

270.4

-0.00111

6815.9

0.0025609

12/30/2009

279.77

0.034652

6807

-0.001294

12/31/2009

270.82

-0.03199

6842.3

0.0051741

1/1/2010

270.82

0

6842.3

0

1/4/2010

273.18

0.008714

6903.6

0.0089707

1/5/2010

276.96

0.013837

6974.5

0.0102642

1/6/2010

276.5

-0.00166

6994.1

0.0028188

1/7/2010

270.28

-0.0225

6971.4

-0.00325

1/8/2010

266.54

-0.01384

6957.3

-0.002023

1/11/2010

268.93

0.008967

6987.8

0.0043867

1/12/2010

260.78

-0.03031

6929.1

-0.008403

1/13/2010

264.1

0.012731

6965.4

0.0052287

1/14/2010

265.11

0.003824

7006.2

0.0058633

1/15/2010

262.08

-0.01143

7005.3

-0.000131

1/18/2010

266.37

0.016369

7039.7

0.004912

1/19/2010

265.36

-0.00379

6982.8

-0.008076

1/20/2010

262.63

-0.01029

6973.7

-0.001302

1/21/2010

260.9

-0.00659

6803.1

-0.024466

1/22/2010

260.82

-0.00031

6730.9

-0.010614

1/25/2010

256.87

-0.01514

6676.1

-0.00814

1/27/2010

244.98

-0.04629

6450.8

-0.033753

1/28/2010

238.08

-0.02817

6477.6

0.004153

1/29/2010

250.14

0.050655

6509.9

0.0049911

2/1/2010

255.99

0.023387

6561.3

0.0078895

2/2/2010

248.84

-0.02793

6475

-0.013144

2/3/2010

253.84

0.020093

6598.6

0.0190888

2/4/2010

250.31

-0.01391

6484.6

-0.017273

2/5/2010

239.55

-0.04299

6314.7

-0.026202

2/8/2010

245.77

0.025965

6382

0.0106465

2/9/2010

249.26

0.0142

6424.6

0.0066892

2/10/2010

243.13

-0.02459

6389.1

-0.005527

2/11/2010

241.74

-0.00572

6464

0.0117152

2/15/2010

238.63

-0.01287

6427.5

-0.005639

2/16/2010

240.52

0.00792

6492.4

0.0100956

2/17/2010

241.11

0.002453

6561.2

0.0105862

2/18/2010

244.81

0.015346

6523.1

-0.005793

2/19/2010

248.42

0.014746

6458.1

-0.009974

2/22/2010

239.93

-0.03418

6452

-0.000951

2/23/2010

239.85

-0.00033

6451.6

-5.43E-05

2/24/2010

239.01

-0.0035

6439.2

-0.00192

Tata Chemicals- Market Index

Date

Adj Close

Return TATA Chem

Adj Close

Market Return BSE S&P 500

2/25/2010

236.19

-0.0118

6432.8

-0.001002

2/26/2010

242.37

0.026165

6518.4

0.01331

3/2/2010

240.18

-0.00904

6644.8

0.0193944

3/3/2010

251.32

0.046382

6739.5

0.0142503

3/4/2010

258.34

0.027933

6752.3

0.0018992

3/5/2010

258.89

0.002129

6775.1

0.0033855

3/8/2010

266.49

0.029356

6816.9

0.0061622

3/9/2010

261.11

-0.02019

6778

-0.005712

3/10/2010

261.2

0.000345

6784.2

0.0009207

3/11/2010

258.8

-0.00919

6793

0.0012985

3/12/2010

255.94

-0.01105

6789

-0.000583

3/15/2010

261.11

0.0202

6766.5

-0.003316

3/16/2010

262.37

0.004826

6843.5

0.0113692

3/17/2010

263.51

0.004345

6878.3

0.0050865

3/18/2010

261.83

-0.00638

6893

0.0021343

3/19/2010

258.93

-0.01108

6913

0.002903

3/22/2010

259.85

0.003553

6844.4

-0.009919

3/23/2010

260.78

0.003579

6864.6

0.0029528

3/25/2010

254.35

-0.02466

6893.7

0.0042436

3/26/2010

263.72

0.036839

6931.1

0.0054266

3/29/2010

268.09

0.016571

6951.1

0.0028826

3/30/2010

267.67

-0.00157

6926.2

-0.003584

3/31/2010

274.73

0.026376

6919.5

-0.000963

4/1/2010

269.39

-0.01944

6980.2

0.0087636

4/5/2010

271.03

0.006088

7074

0.0134409

4/6/2010

271.2

0.000627

7085.1

0.0015678

4/7/2010

270.95

-0.00092

7106.9

0.0030811

4/8/2010

270.86

-0.00033

7032.5

-0.010467

4/9/2010

272.12

0.004652

7099.9

0.0095712

4/12/2010

274.77

0.009738

7072.9

-0.003792

4/13/2010

280.36

0.020344

7057.6

-0.00217

4/15/2010

275.87

-0.01602

7007.5

-0.007097

4/16/2010

274.23

-0.00594

6985.6

-0.003121

4/19/2010

271.66

-0.00937

6910.8

-0.010708

4/20/2010

273.93

0.008356

6965

0.0078442

4/21/2010

274.81

0.003212

7001.3

0.0052017

4/22/2010

278.3

0.0127

7021.1

0.002831

4/23/2010

286.2

0.028387

7049.6

0.0040649

4/26/2010

289.94

0.013068

7078.9

0.004152

4/27/2010

295.11

0.017831

7063.9

-0.002112

4/28/2010

288.85

-0.02121

6953.9

-0.015583

4/29/2010

290.2

0.004674

7001.4

0.0068423

4/30/2010

297.3

0.024466

7042.7

0.0058903

5/3/2010

297.13

-0.00057

6993.3

-0.00701

5/4/2010

287.34

-0.03295

6886

-0.015342

5/5/2010

288.81

0.005116

6875.8

-0.001481

5/6/2010

284.52

-0.01485

6842.1

-0.004897

5/7/2010

276.03

-0.02984

6715.9

-0.018455

5/10/2010

285.83

0.035503

6918.3

0.0301361

5/11/2010

283.64

-0.00766

6841.2

-0.011143

5/12/2010

280.82

-0.00994

6866.2

0.0036573

5/13/2010

282

0.004202

6913.1

0.0068261

5/14/2010

281.58

-0.00149

6819

-0.013602

5/17/2010

285.11

0.012536

6785.2

-0.004964

5/18/2010

285.49

0.001333

6795.7

0.0015519

5/19/2010

277.8

-0.02694

6611.1

-0.02717

5/20/2010

272.5

-0.01908

6637

0.0039131

5/21/2010

266.91

-0.02051

6592.4

-0.006717

5/24/2010

256.95

-0.03732

6602.5

0.0015336


Tata Chemicals- Market Index

Date

Adj Close

Return TATA Chem

Adj Close

Market Return BSE S&P 500

5/25/2010

249.47

-0.02911

6418.7

-0.027838

5/26/2010

255.73

0.025093

6545.1

0.0197003

5/27/2010

273.55

0.069683

6639.2

0.0143756

5/28/2010

267.8

-0.02102

6728.8

0.0134895

5/31/2010

270.36

0.009559

6782.4

0.0079643

6/1/2010

265.48

-0.01805

6654.8

-0.018815

6/2/2010

259.35

-0.02309

6718.2

0.0095331

6/3/2010

264.77

0.020898

6819.1

0.0150233

6/4/2010

268.59

0.014428

6845.5

0.0038598

6/7/2010

263.64

-0.01843

6726.9

-0.017321

6/8/2010

259.68

-0.01502

6671.4

-0.008248

6/9/2010

258.68

-0.00385

6700.5

0.0043634

6/10/2010

262.42

0.014458

6792.9

0.013793

6/11/2010

261.2

-0.00465

6827.5

0.0050832

6/14/2010

264.48

0.012557

6916.8

0.0130854

6/15/2010

268.38

0.014746

6950.3

0.0048375

6/16/2010

264.22

-0.0155

6962.5

0.0017654

6/17/2010

262

-0.0084

7007.2

0.0064187

6/18/2010

259.85

-0.00821

6980.5

-0.003815

6/21/2010

266.37

0.025091

7092.9

0.0161034

6/22/2010

264.9

-0.00552

7059.4

-0.004719

6/23/2010

269.1

0.015855

7081.9

0.0031801

6/24/2010

276.12

0.026087

7077.3

-0.000647

6/25/2010

274.06

-0.00746

7032.5

-0.006326

6/28/2010

274.65

0.002153

7113.3

0.0114895

6/29/2010

278.85

0.015292

7035.8

-0.010905

6/30/2010

280.82

0.007065

7092.2

0.0080219

7/1/2010

277.46

-0.01196

7039

-0.007508

7/2/2010

278.5

0.003748

7023.6

-0.002184

7/5/2010

279.92

0.005099

7025.4

0.000262

7/6/2010

281.52

0.005716

7083.6

0.0082771

7/7/2010

279.8

-0.00611

7038.3

-0.006398

7/8/2010

280.23

0.001537

7103

0.0091997

7/9/2010

282.09

0.006637

7163.5

0.0085119

7/12/2010

283.21

0.00397

7193.8

0.004234

7/13/2010

283.9

0.002436

7224.6

0.0042898

7/14/2010

280.57

-0.01173

7204.8

-0.002742

7/15/2010

280.14

-0.00153

7196.9

-0.001101

7/16/2010

280.27

0.000464

7223.8

0.0037321

7/19/2010

280.36

0.000321

7221.3

-0.000345

7/20/2010

280.88

0.001855

7197.2

-0.00334

7/21/2010

283.64

0.009826

7234.3

0.0051659

7/22/2010

281.7

-0.00684

7281.9

0.0065701

7/23/2010

282.34

0.002272

7276.6

-0.000728

7/26/2010

282.86

0.001842

7231.3

-0.006223

7/27/2010

282.99

0.00046

7249.8

0.0025556

7/28/2010

282.78

-0.00074

7220.3

-0.004072

7/29/2010

279.58

-0.01132

7235.1

0.0020525

7/30/2010

290.9

0.040489

7205.2

-0.004126

8/2/2010

304.68

0.04737

7284.3

0.0109781

8/3/2010

301.83

-0.00935

7300.4

0.0022075

8/4/2010

300.02

-0.006

7323.1

0.0031122

8/5/2010

293.97

-0.02017

7310.5

-0.001726

8/6/2010

306.88

0.043916

7304.6

-0.000802

8/9/2010

317.73

0.035356

7370.2

0.0089779

8/10/2010

311.33

-0.02014

7340.2

-0.004073

8/11/2010

311.33

0

7290

-0.006838

8/12/2010

310.86

-0.00151

7301.7

0.0016022

8/13/2010

312.72

0.005983

7349.2

0.0065054

Tata Chemicals- Market Index

Date

Adj Close

Return TATA Chem

Adj Close

Market Return BSE S&P 500

8/16/2010

331.25

0.059254

7314.4

-0.004738

8/17/2010

333.8

0.007698

7329.2

0.0020248

8/18/2010

347.07

0.039754

7400.7

0.0097583

8/19/2010

345.86

-0.00349

7473.7

0.0098694

8/20/2010

341.71

-0.012

7469.1

-0.000613

8/23/2010

350.48

0.025665

7497.1

0.0037461

8/24/2010

346.37

-0.01173

7452.8

-0.005917

8/25/2010

342.18

-0.0121

7381.8

-0.009516

8/26/2010

337.39

-0.014

7391.5

0.0013114

8/27/2010

329.52

-0.02333

7310.9

-0.010902

8/30/2010

334.84

0.016145

7321.4

0.0014239

8/31/2010

341.58

0.020129

7289.7

-0.004317

9/1/2010

341.97

0.001142

7394.1

0.0143215

9/2/2010

341.97

0

7423.2

0.0039247

9/3/2010

354.67

0.037138

7439.1

0.0021446

9/6/2010

361.8

0.020103

7559.3

0.0161659

9/7/2010

357.09

-0.01302

7586.8

0.0036339

9/8/2010

354.41

-0.00751

7596.4

0.0012601

9/9/2010

366.72

0.034734

7638.9

0.0055948

9/13/2010

370.96

0.011562

7767.5

0.0168454

9/14/2010

365.64

-0.01434

7791

0.0030152

9/15/2010

363.09

-0.00697

7842.1

0.0065678

9/16/2010

356.61

-0.01785

7796.6

-0.005807

9/17/2010

355.84

-0.00216

7881.8

0.010924

9/20/2010

359.38

0.009948

7979.1

0.0123449

9/21/2010

350.35

-0.02513

7975.1

-0.000503

9/22/2010

343.05

-0.02084

7949.2

-0.003244

9/23/2010

342.4

-0.00189

7918.3

-0.003885

9/24/2010

351.6

0.026869

7991.2

0.0092027

9/27/2010

354.37

0.007878

8019.3

0.0035138

9/28/2010

350.57

-0.01072

8021

0.000222

9/29/2010

345.12

-0.01555

7973.8

-0.005892

9/30/2010

344.69

-0.00125

7984.5

0.0013382

10/1/2010

346.68

0.005773

8135.2

0.0188842

10/4/2010

346.68

0

8169.8

0.0042445

10/5/2010

343.74

-0.00848

8178.5

0.0010637

10/6/2010

358.6

0.04323

8243.5

0.0079514

10/7/2010

355.62

-0.00831

8169.6

-0.008964

10/8/2010

354.54

-0.00304

8139.8

-0.003642

10/11/2010

365.04

0.029616

8188.9

0.0060235

10/12/2010

363.79

-0.00342

8131.5

-0.007005

10/13/2010

364.04

0.000687

8280.3

0.0182918

10/14/2010

375.41

0.031233

8220.3

-0.007244

10/15/2010

371.99

-0.00911

8086.4

-0.016291

10/18/2010

367.46

-0.01218

8089.2

0.0003549

10/19/2010

363.27

-0.0114

8044.4

-0.005536

10/20/2010

367.2

0.010818

8003.1

-0.005134

10/21/2010

373.12

0.016122

8141.4

0.0172807

10/22/2010

370.53

-0.00694

8119.1

-0.002749

10/25/2010

371.69

0.003131

8168.2

0.00605

10/26/2010

380.12

0.02268

8140.6

-0.003373

10/27/2010

378.65

-0.00387

8073.5

-0.00825

10/28/2010

368.62

-0.02649

8036.5

-0.004579

10/29/2010

337.17

-0.08532

8036.9

4.727E-05

11/1/2010

334.84

-0.00691

8164.9

0.0159241

11/2/2010

340.33

0.016396

8181

0.0019731

11/3/2010

352.21

0.034907

8228.8

0.0058427

11/4/2010

357.43

0.014821

8356.9

0.0155662

11/5/2010

358.73

0.003637

8405.1

0.005776


 


Tata Chemicals- Market Index

Date

Adj Close

Return TATA Chem

Adj Close

Market Return BSE S&P 500

11/8/2010

355.14

-0.01001

8369.5

-0.004243

11/9/2010

351

-0.01166

8405.7

0.0043241

11/10/2010

353.98

0.00849

8388.7

-0.002014

11/11/2010

347.32

-0.01881

8284.7

-0.012402

11/12/2010

339.37

-0.02289

8111

-0.020965

11/15/2010

333.72

-0.01665

8155.5

0.0054864

11/16/2010

325.98

-0.02319

7984.6

-0.020954

11/18/2010

328.31

0.007148

7988.5

0.0004934

11/19/2010

321.88

-0.01959

7844.1

-0.018082

11/22/2010

326.63

0.014757

7976.2

0.0168381

11/23/2010

328.57

0.005939

7883

-0.011686

11/24/2010

317.86

-0.0326

7788.8

-0.011951

11/25/2010

311.16

-0.02108

7679.1

-0.014074

11/26/2010

304.51

-0.02137

7552.1

-0.016542

11/29/2010

312.2

0.025254

7642.4

0.011949

11/30/2010

306.63

-0.01784

7722

0.0104287

12/1/2010

322.74

0.052539

7874.8

0.0197823

12/2/2010

319.07

-0.01137

7934.3

0.0075583

 

·       Historical files of both share price and stock market index data with their rate of return.

 

Tata Chemicals, -10<0>+10 event period

Date

Adj Close

TATA Chem

Adj Close

BSE S&P 500

12/3/2010

312.98

-0.01909

7873.4

-0.007684

12/6/2010

311.33

-0.00527

7858.6

-0.001878

12/7/2010

311.33

0

7820.5

-0.004846

12/8/2010

306.8

-0.01455

7707.5

-0.014452

12/9/2010

300.06

-0.02197

7486.2

-0.028703

12/10/2010

307.06

0.023329

7605.2

0.0158864

12/13/2010

311.46

0.014329

7694.5

0.0117473

12/14/2010

321.53

0.032332

7756.4

0.008046

12/15/2010

315.96

-0.01732

7676.8

-0.010271

12/16/2010

320.71

0.015034

7732.5

0.007257

12/20/2010

322.18

0.004584

7727

-0.000711

12/21/2010

323.82

0.00509

7790.8

0.008262

12/22/2010

335.4

0.035761

7784.6

-0.000796

12/23/2010

339.63

0.012612

7769.4

-0.001953

12/24/2010

338.64

-0.00291

7798.8

0.0037777

12/27/2010

338.99

0.001034

7778

-0.002657

12/28/2010

338.99

0

7778.2

2.574E-05

12/29/2010

334.36

-0.01366

7849.5

0.0091602

12/30/2010

336.22

0.005563

7898.6

0.0062564

12/31/2010

340.33

0.012224

7961.1

0.007909

1/3/2011

349.23

0.026151

8001.5

0.0050772

 

 

·       Historical files of both share price and stock market index data around the event date -10<0>+10with their return.

 

 

Tata Chemicals- British Salt

SINGLE FACTOR MODEL

INTERCEPT

0.000485

SLOPE

1.023755

R-SQUARE

0.24052

STANDARD ERROR

0.017513

 

Date

[E] r

AR

AAR

AR-t  test

Significance

12/3/2010

-0.0074

-0.0117

-0.012

-0.6683

no

12/6/2010

-0.0014

-0.0038

-0.016

-0.2189

no

12/7/2010

-0.0045

0.0045

-0.011

0.2556

no

12/8/2010

-0.0143

-0.0002

-0.011

-0.0137

no

12/9/2010

-0.0289

0.0069

-0.004

0.3958

no

12/10/2010

0.01675

0.0066

0.0022

0.3757

no

12/13/2010

0.01251

0.0018

0.004

0.1038

no

12/14/2010

0.00872

0.0236

0.0276

1.3481

no

12/15/2010

-0.01

-0.0073

0.0203

-0.4164

no

12/16/2010

0.00791

0.0071

0.0275

0.4065

no

12/20/2010

-0.0002

0.0048

0.0323

0.2756

no

12/21/2010

0.00894

-.0039

0.0284

-0.22

no

12/22/2010

-0.0003

0.0361

0.0645

2.0608

yes

12/23/2010

-0.0015

0.0141

0.0787

0.8066

no

12/24/2010

0.00435

-0.0073

0.0714

-0.415

no

12/27/2010

-0.0022

0.0033

0.0747

0.1866

no

12/28/2010

0.00051

-0.0005

0.0741

-0.0292

no

12/29/2010

0.00986

-0.0235

0.0506

-1.3431

no

12/30/2010

0.00689

-0.0013

0.0493

-0.0758

no

12/31/2010

0.00858

0.0036

0.0529

0.208

no

1/3/2011

0.00568

0.0205

0.0734

1.1687

No

 


 

 

 

 

 

 


CONCLUSION:

An event study methodology has been used to explore the short-term shareholder wealth of the Tata Chemicals around the event date i. e. 20th Dec. 2010. The merger of the British Salt with the Tata Chemicals has been studied. This is the first study of stock market valuation and estimation of abnormal returns in the context of Indian mergers. The results document positive on the date of merger but not significant. This event increase in the value to the shareholders of bidder firm. The findings of the study are positive.  It emerges that global merger announcement in the Indian industry has positive and significant shareholders wealth effect for the bidder and firm.

 

REFERENCES:

1.     Anand Manoj and Singh Jagandeep (2008) ‘Impact of Merger Announcements on Shareholders’ Wealth Evidence from Indian Private Sector’, Volume 33 Pages: 360-383.

2.     Appelbaum, S. H. Gandell, Yortis, Proper and Jobin (2000) ‘Anatomy of a Merger:Behaviour of Organizational Factors and Processes throughout the Pre-during-poststages’(Part 1) Pages: 649-662.

3.     Aw, M., and Chatterjee, R. (2004). The performance of UK firms acquiring large cross-border and domestic takeover targets. Applied Financial Economics, 14, 337–49. http://dx.doi.org/10.1080/0960310042000211605

4.     Blonigen, B. (1997). Firm-specific assets and the link between exchange rates and foreign direct investment. American Economic Review, 87, 447–65.

5.     Barai, P., and Mohanty, P. (2010). Short term performance of Indian acquirers–effects of mode of payment, industry relatedness and status of target.

6.     Bertranda, O., and Marie-Ann, B. (2012). Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers. Journal of Comparative Economics, 40(3), 413–437. http://dx.doi.org/10.1016/j.jce.2011.11.003

7.     Cakici N., Hessel C. and Tandon, K. (1996) Foreign Acquisitions in the United States: Effect on Shareholder Wealth of Foreign Acquiring Firms, Journal of Banking and Finance, 20(2), 307-329.

8.     Cartwright S. and Cooper, C. L. (1993) ‘The Physiological Impact of Mergers and Acquisitions on the Individual: A Study of building society managers’ Volume 3, Pages:327-347.

9.     Eckbo, E. and Thornburn, K.S. (2000) Gains to Bidder Firms Revisited: Domestic and foreign Acquisitions in Canada, Journal of Financial and Quantitative Analysis, 35(1), 1-25.

10.  Eckbo, E., and Thorburn, K. (2000). Gains to bidder firms revisited: domestic and foreign acquisitions in Canada. Journal of Financial and Quantitative Analysis, 35, 1–25. http://dx.doi.org/10.2307/2676236

11.  Fee, C. E., and Thomas, S. (2004) Sources of Gains in Horizontal Mergers: Evidence from Customer, Supplier, and Rival Firms, Journal of Financial Economics, 74(3), 423- 460

12.  Hassan, M., Patro, D.K., Tuckman, H. and Wang, X.(2007) Do Mergers and Acquisitions Create Shareholders Wealth in the Pharmaceutical Industry, International Journal of Pharmaceutical and Healthcare Marketing, 1(1), 58-78.

13.  Jha, Ravinder (2007) Options for Indian Pharmaceutical Industry in the Changing Environment, Economic and Political weekly, September 29, 3958-66.

14.  https://in.finance.yahoo.com/q/hp?a=11&b=1&c=2009&d=00&e=5&f=2011&g=d&s=TATACHEM.BO%2C+&ql=1

15.  https://in.finance.yahoo.com/q/hp?s=BSE-500.BO&a=11&b=1&c=2009&d=00&e=5&f=2011&g=d

16.  Kohli, R., and Mann, B. J. S. (2011). Analyzing determinants of value creation in domestic and cross–border acquisitions in India. International Business Review.

17.  Kose, J., Steven, F., Nguyen, D., and Vasudevan, G. K. (2010). Investor protection and cross-border acquisitions of private and public targets. Journal of Corporate Finance, 16, 259–275. http://dx.doi.org/10.1016/j.jcorpfin.2010.02.001

18.  Markides, C., and Oyon, D. (1998) International Acquisitions: Do They Create Value for Shareholders?, European Management Journal, 16(2), 125-135.

19.  Moeller, S. B., Schlingemann, F. P. and Stulz, R. M., (2004) Firm Size and the Gains from Acquisitions, Journal of Financial Economics, 73(2), 201-228.

20.  Rani, N., Yadav, S. S., and Jain, P. K. (2011). Impact of mergers and acquisitions on shareholders’ wealth in short-run: an empirical study of Indian pharmaceutical industry. International Journal of Global Business and Competitiveness, 6(1), 40–52.

21.  Shahrur, H.(2005), Industry Structure And Horizontal Takeovers: Analysis of Wealth Effects on Rivals, Suppliers, and Corporate Customers, Journal of Financial Economics, 76(1), 61-98.

22.  Singh, P., Suri, P., and Sah, R. (2010). Economic value added in Indian cross border mergers. International Journal of Business Research, 12(2), 160–164

23.  Travlos, N. G., (1987) Corporate Takeover Bids, Methods of Payment, and Bidding Firms’ Stock Returns, Journal of Finance, 42 (4), 943-963

24.  Walker, M. (2000). Corporate takeovers, strategic objectives, and acquiring-firm shareholder wealth. Financial Management, 29, 3–66. http://dx.doi.org/10.2307/3666361

25.  Zhu, P., and Malhotra, S. (2008). Announcement effect and price pressure: An empirical study of cross-border acquisitions by Indian firms. International Research Journal of Finance and Economics, 13, 24–41.

26.  Zhu, P., Jog, V., and Otchere, I. (2011). Partial acquisitions in emerging markets: A test of the strategic market entry and corporate control hypotheses. Journal of Corporate Finance, 17, 288–305. http://dx.doi.org/10.1016/j.jcorpfin.2010.09.003

 

 

 

 

 

 

Research J. Humanities and Social Sciences. 8(4): October -December, 2017, 451-458.

DOI:   10.5958/2321-5828.2017.00066.3

Received on 23.08.2017

Modified on 19.09.2017

Accepted on 22.10.2017

© A&V Publications all right reserved