Does the acquisition increase shareholder wealth?: evidence from the case of BJC acquiring Big C, in Thailand

Abstract

The study aims to investigate whether BJC taking over BigC transactions creates any wealth to shareholders in the short run and long run reflecting in two measures, stock measures and accounting measures. The stock returns are evaluated by using an event study approach to answer three questions in the short time. The first question is the length of time the market absorbs information reflects in the movement of stock price trading surroundings the event date. The finding suggests that there is the possibility of rumors spreading before the announced date for CPALL, Big C and Makro. Secondly, for the short-term shareholders gain for the bidder and the target, CPALL transaction illustrates the negative returns for the target in every window period while the bidder enjoys the abnormal returns in 3 different window periods. In the BJC case, the implication is that both sides of the investors have a positive outlook on the deal. In contrast, Makro investors view the deal as distorting value merger with the cumulative negative returns in every window period. The third examination suggests that diversifying is preferred by the investors on both sides.

On the other hand, the accounting approach can confirm a profitability strategy in M&A. It can also examine the improvement in performance. The transaction of BJC causes the decline in performance less than the CPALL case. This may be caused by the higher premium CPALL giving to the target. Moreover, diversification seems to be the better strategy. Finally, margin ratios disclose the consequence from BJC modern trade segment that, on average, are less than the prior EBT margins of BigC. However, the CPALL case reveals the decline in profitability of the bidder but the increase for the target. The decrease in the profitability ratios of bidders can be due to the accounting effect that leads to the increase in assets and the higher burdens of debt used to finance the transactions.