Merger Activity in the Pharmaceutical Industry
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Merger activity in the pharmaceutical industry has increased considerably over the last five years. Moreover, current literature suggests that tender offers have higher announcement period returns for bidders and cash mergers have higher returns to the combined firm. Therefore, in this study I examine techniques of successful mergers and their integration process. In particular, I examine 83 mergers from 1995 to 2000 to test the relationship between the announcement period returns and the following variables: method of payment, transaction type, and merger length, over the same period of time. Contrary to prior studies, I find little evidence that these traditional variables affect the announcement period returns in the pharmaceutical industry. In addition, I find that pharmaceutical mergers are shorter in duration compared to the overall market. Moreover, target shareholders enjoy substantial gains in the short-run, while the bidders incur insignificant losses. While these results are similar to prior studies of non-pharmaceutical mergers, the combined effects on the returns of the merged firm are inconclusive. Further studies will need to examine additional variables such as asset size and profitability measures, among others, to better determine the motivations for mergers in the pharmaceutical industry.