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Consolidation and communication in European energy markets

Consolidation and communication in European energy markets Purpose – A substantial minority of bidding firms disclose synergy forecasts during mergers and acquisitions (M&A). Using these hand‐collected synergy announcements, the purpose of this paper is to investigate synergy characteristics as well as explore their shareholder wealth effects within the European energy sector between 1998 and 2010. Design/methodology/approach – The authors employ the market model event study methodology to infer short‐term wealth implications as well as the Fama French 3 Factor model to estimate long‐term effects. Findings – The paper provides evidence for a positive correlation between the synergy size and combined bidder and target returns. However, the market discounts disclosed synergies to a degree which reveals that managers in the energy sector are likely to overestimate the actual, realizable size of the emerging synergies. Additionally, the results show that post merger long‐term returns of synergy disclosing firms remain significantly positive, indicating that projected synergies are continuously realized. Originality/value – As the first study the paper shows that a synergy disclosure effect exists within the European market and hence demonstrates that synergy forecasts serve as an efficient instrument to decrease existing information asymmetries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Energy Sector Management Emerald Publishing

Consolidation and communication in European energy markets

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1750-6220
DOI
10.1108/17506221211282028
Publisher site
See Article on Publisher Site

Abstract

Purpose – A substantial minority of bidding firms disclose synergy forecasts during mergers and acquisitions (M&A). Using these hand‐collected synergy announcements, the purpose of this paper is to investigate synergy characteristics as well as explore their shareholder wealth effects within the European energy sector between 1998 and 2010. Design/methodology/approach – The authors employ the market model event study methodology to infer short‐term wealth implications as well as the Fama French 3 Factor model to estimate long‐term effects. Findings – The paper provides evidence for a positive correlation between the synergy size and combined bidder and target returns. However, the market discounts disclosed synergies to a degree which reveals that managers in the energy sector are likely to overestimate the actual, realizable size of the emerging synergies. Additionally, the results show that post merger long‐term returns of synergy disclosing firms remain significantly positive, indicating that projected synergies are continuously realized. Originality/value – As the first study the paper shows that a synergy disclosure effect exists within the European market and hence demonstrates that synergy forecasts serve as an efficient instrument to decrease existing information asymmetries.

Journal

International Journal of Energy Sector ManagementEmerald Publishing

Published: Nov 16, 2012

Keywords: Acquisitions and mergers; Synergy disclosure; Energy industry; Event study; Communication; Europe

References