MERGERS AND ACQUISITIONS

The Effect on Shareholder Wealth from Mergers and Acquisitions in the Pharmaceutical Industry: The Case of Astrazeneca Plc and Medimmune Inc

Abstract

A strategic alliance is “an agreement between firms to do business together in ways that go beyond normal company-to-company dealings, but fall short of a merger or a full partnership” (Wheelen and Hungar, 2000, p. 125). Strategic alliances generally represent inter-firm cooperative agreements aimed at achieving competitive advantage for the partners. These alliances range from informal “hand shake” agreements to formal agreements with lengthy contracts in which the parties may also exchange equity or contribute capital to form joint venture corporations. In recent years there has been a dramatic increase in strategic alliances by multinational firms (Tapsell, 1999; Farris, 1999; Hill, 1999). The last 20 years have witnessed a clear and growing pattern in strategic alliance formation among corporations (Glaister and Buckley, 1996). Even though much of the discussion in current literature regarding strategic alliances has typically focused on alliances between business ventures, strategic alliances between corporations and institutions of higher education have gained momentum in the last couple of years (Saffu and Mamman, 2000). As a result of the challenge brought about by global competition and the changing emphasis on research and development (R&D), institutions of higher education have become important parts of a cooperative agreement that tries to tackle complex, fundamental industrial problems of major business or societal significance

Table of Contents

Chapter 1: Introduction5

Purpose of the Study5

Problem Statement5

Significance of the Study6

Hypothesis7

Organization of the Study8

Chapter 2: Literature Review9

Classification of conglomerate and nonconglomerate mergers10

Chapter 3: Methodology13

Hypothesis13

Sample and Data13

Research Design and Methodology14

Chapter 4: Analysis of Findings and Discussion16

Empirical results16

Why are convertible securityholder returns so large?18

Merger-induced beta and variance changes20

Regression analysis of VPE results22

Common stock regression results27

Preferred stock regression results28

Corporate bond regression results29

Net synergistic gains regression results32

Chapter 5: Conclusion34

Recommendations35

Implications for Future Research37

References39

Chapter 1: Introduction

Purpose of the Study

The purpose of this study is to examine the wealth effects on target and bidder shareholders from the takeover of MedImmune Inc by AstraZeneca Plc. The British-Swedish based drug giant, AstraZeneca made a move in April 2007 to acquire MedImmune Inc, an American pharmaceutical company which is very competitive in the area of experimental drug development and the production of vaccines. The deal was widely criticized on the basis that AstraZeneca's 'all cash' offer of $15.6 billion was too much. AstraZeneca identified long term benefits that the merger was going to bring to the group which in their opinion would surpass the cost of acquisition. An analysis of the wealth gains of shareholders of both companies around the announcement through a short run event study methodology is bound to give valuable insight on whether the acquisition was a success or failure for both companies.

Problem Statement

Although finance theorists have examined corporate mergers from many different perspectives, most of these models predict one of two primary effects. Either mergers create net new wealth from operating or financial synergies, or they redistribute existing wealth between stakeholder classes. Though empirical support exists for most models, it has proven difficult to ...