Bidder gains and losses of firms involved in many acquisitions

We examine shareholders' wealth effects (both in the short- and the long-run) of UK frequent bidders acquiring public, private, and/or subsidiary targets with alternative methods of payment between 1987 and 2004. We find that, in the short-run, bidders break even when acquiring public targets and gain significantly when buying private and subsidiary targets. This result is robust after controlling for relative size, bidder's book-to-market ratio, target origin, and industry diversification. Our long-run evidence, however, reveals that acquirers experience, significant wealth losses regardless of the target type acquired, indicating that markets may initially overreact to the acquisition announcement. As a result, we argue that contrary to Fuller et al. (2002) who suggest that acquiring private and subsidiary firms creates value for bidding firms, a reliable conclusion on bidders' shareholders wealth effects cannot be based solely on a short-run event study.