Donner index
3. Disclosure of mergers without regulatory restrictions: Who gains from mergers?
3.4 Method of Sampling
3.4.1 Determination of the event day
As more thoroughly discussed in chapter two, the day of the announcement of a merger is regarded as event day around which I construct the event window. For the sample of the year 1908, merger announcements published in the daily newspaper `Berliner Boersenzeitung´
between January to June 1908 are considered. The `Berliner Boersenzeitung´ was the leading newspaper for investors; thus, one can regard this released mergers as public information. For the year 1908, I detect 101 mergers of which forty-six are included in my sample because not all companies are listed on the stock exchange. Moreover, thirteen firms decided to hide an impending merger. In contrast to my study, Banerjee and Eckhard (2001) collected 56 mergers of which nineteen firms did not disclose the merger; thereby, the so called first merger wave 1897-1903 is their investigation period. Furthermore, Banerjee and Eckhard
84 See WpHG §15.
85 Nowadays, seven daily newspapers fulfill the legal requirements being an official stock exchange gazette. It is also allowed to disclose new information in an electronic system like vwd (see www.vwd.de).
86 Issues for the year 2000 and the first two quarters of 2002 are available on the homepage (http://www.bafin.de/frame_bawe.htm).
(2001) worked on a weekly level, 87 whereas I use daily returns and determine the exact event-day.
In the year 1908, the involved firms themselves publicly declared impending merger, whereas rumors appeared only seldom in the daily newspaper. One exception was the rumor that an acquirer started buying the stocks of the mining company `Donnersmarksche Huette´.
In this case of a hidden merger, it is reasonable to use the day of the publication of the rumor as event day. By reading the newspaper, even uninformed investors can update their information regarding the probability of a tender offer.
For the sample of the year 2000, I use the same methodology and collect 61 mergers by reading the daily newspaper `Handelsblatt´ and by working with online archives.88 The included mergers were released between January and June 2000. Note that only merger activities in which at least one participating firm is owned by mostly German stock holders are considered. A further requirement is that all stocks have to be listed on German stock exchanges; thereby, the overwhelming part of the included stocks were traded on the Frankfurt stock exchange. In contrast to the historical time period, rumors were very common in the year 2000 and even worse many rumors were false. In this case, false means that the rumor is not followed by concrete negotiations. The sense of these rumors – often spread by the management of the affected firms – is to influence the market value of the firm respectively to confuse competitors. These false rumors are excluded from the sample.
Therefore, the event day is the day of the public declaration of an official announcement or a rumor that is followed by negotiations.
3.4.2 Should one include unsuccessful mergers?
In the year 1908, only a few mergers were not successful in the sense that the proposed mergers failed to achieve the necessary majority in the shareholder gathering or legal restrictions prevented the merger. One of the two exceptions was the merger among three shipyard companies `Neptun´, `Howaldswerke´, and `Koch Werft´. In this case, the city of Rostock intervened caused by the fear of loosing an important local tax payer. In addition, the shareholders were not convinced by the `big deal´. To get an impression how this `merger thriller´ was discussed in the daily newspaper, table 3.1 presents the related announcements.
The rich details provided by the daily newspaper and the remarkable number of related
87 They relied on information provided by the weekly newspaper `The Commercial and Financial Chronicle´.
88 Nowadays, the BaFin provides excellent data on ad-hoc announcements – but this official source neglects rumors that can also affect stock prices tremendously. Hence, one should add the information spread by newspapers to get a detailed impression with regard to the public information.
announcements is comparable to current print media. Henceforth, outsiders in the year 1908 could use the `Berliner Börsenzeitung´ to get up to date information of high quality.
In the year 2000, a remarkable number (22 out of 61) of the announced mergers were not executed later. The merger between `Deutsche Bank´ and `Dresdner Bank´ was among these failures. Why should one include these unaccepted mergers? As shown in chapter two, the dummy variable that takes the value one if the merger gets the approval of the shareholders does not affect the cumulated abnormal return of the acquiring or target firm.
Especially in the year 2000, the legal process to accept a merger took several months; hence, the day of the announcement and the confirmation that the merger was in line with the legal framework were timely far away. This means that the market responds to the merger announcement building expectation regarding the acceptance by the monopolies commission, the behavior of the shareholders and so on. Thus, I include declared mergers that are not executed later – but I control for this problem by using a dummy variable or by defining subgroups.
Table 3.1: A historical `merger thriller´ among leading shipyard companies
The chronological announcements indicate the rich flow of newly available information about 100 years ago.
Date of the announcement in the
`Berliner Börsenzeitung´
Abbreviated content of the announcement 7th February 1908
Morning issue, insert III, title page
“The three shipyards `Neptun´, `Howaldtswerke´, and
`Eiderwerft´ announce a merger. They convene extraordinary shareholder gatherings”
8th February 1908 Evening issue, page 11
“`Howaldtswerke´ call an extraordinary shareholder gathering requesting the approval for the merger with
`Neptun´. The gathering will take place on 29th February”
9th February 1908
Sunday issue, insert II “In a meeting of the advisory board of `Howaldtswerke´, doubts regarding the impending merger arise.”
14th February 1908 Evening issue, insert III
“Also the meeting of debenture holders of
`Howaldtswerke´ will take place on 29th February”
26th February 1908 Evening issue, page 11
“Strong opposition within the company `Neptun´ forms to argue against the proposed merger. Concerns about disadvantages for the employees of `Neptun´ emerge. In addition, the city of `Rostock´ fears that the headquarters of `Neptun´ could be shifted. Hence, `Rostock´ would loose an important local taxpayer.”
29th February 1908 Evening issue, page three
“Shareholder gathering of `Neptun´ rejects the merger for the time being”
1st March 1908
Sunday issue, insert III
“The extraordinary shareholder gathering of
`Howaldtswerke´ rejects the merger. This decision is justified by the generally bad shape of the shipyard industry and the expressed disapproval of `Neptun´.
Furthermore, the simultaneous merger with more than one shipyard failed. An ordinary shareholder gathering will be conducted on 28th March.”
2nd March 1908
Evening issue, page 11 “For the last financial year, `Howaldswerke´ cancels dividend payments”
2nd March 1908
Evening issue, page 12
“General meeting of `Eiderwerft´ rejects the merger with
`Howaldswerke´ and `Neptun´ because the `Kochsche Werft´ does not want to participate in the merger.”
3.4.3 Determination of the event and estimation period
The event window starts fifteen days before the public announcement and ends fifteen days afterwards. During this predetermined event period, I try to identify the economic impact of a merger by observing the deviation of daily return from the normal stock price movement.
Note that the normal return is estimated for the sample of the year 2000 during an estimation period starting at 1st July 1999;89 thereby, I collect 50 daily returns for each stock and calculate the normal return. Note that the estimation period should be timely sufficiently far away from the event period to avoid that a merger can influence the estimated normal stock price behavior. Any significant deviation from this normal stock price movement serves as a hint that the merger possesses an economic impact on the firms market value. This deviations are called abnormal returns. The choice of the event period for the year 2000 can be justified by calculating the average p-values of the abnormal returns of the whole sample (see figure one). Indicating a high level of stock price movements caused by the merger announcement, the average p-value reaches its minimum around the event day (t=16).90