Cass Finance Blog

Who benfits in takeovers?


As the dust is now settled, it is appropriate to ask the question of who benefited from Pfizer’s bid intentions of AstraZeneca. Undoubtedly, the various advisers have gained lots of fees, which, so far, are not known as they are not disclosed by the two companies. In terms of investors, the answer to this question lies in the behaviour of stock prices around the financial press reports and the various news announcements. This is a complicated case as it started with a Sunday press report. One needs to go deeper to identify the likely dates when the information started leaking to the market, i.e., when the US group started getting interested in taking over the UK pharmaceutical company, AstraZeneca. We start with the major news dated on Monday 28 April, following the weekend press speculation, when Pfizer offered £46.61. AstraZeneca share price increased to £46.67 from £40.80 on Friday 25 April, an increase of 13.43%. In academic studies, we adjust for the expected returns, assumed for simplicity to be equal to the market return. In this case, the price jump amounts to 13.21%. This is a major increase in AstraZeeneca share price and reflects expected synergies and the likelihood of the bid success.  In contrast, on the 19 May, when the offer is increased to £55, the price of AstraZeneca fell by 11.78% from £48.23 to £42.87, reflecting the probability that the bid will not go through as the board of AstraZeneca rejected the offer. These findings suggest that after first bid is announced, the share price of AstraZeneca has followed a relative roller-coaster, probably reflecting the likelihood that the bid will be stopped and/or the price will be raised. Investors are, therefore, likely to take some risk if they buy shares in the target, particularly if they cannot estimate appropriately the value of Pfizer’s various proposals and the perceived likelihood of a formal bid being launched.

The interesting issue is, however, the price trend before the bid is announced, which appears to contain substantially more information. The analysis of the excess returns one year before this bid reveals interesting findings. The excess returns from 22 May 2013 to 22 November 2013 were relatively zero. The average daily abnormal returns are 0.01%, resulting in cumulative excess returns over these 7 months of 0.79%. This is normally what we would except in the absence of news when the market is efficient, i.e., it reflects all the publicly available information. However, from 23 November to 25 April, the day before the announcement of the bid, the average daily returns are 0.22%, resulting in cumulative abnormal returns of 24.16% over these 112 days. As a shareholder, the total gains if we include the excess returns of 13.21% on the announcement date amount to 37.38% in roughly 6 months-time. This exceptional trend in stock price is likely to suggest that investors who are likely to benefit from a takeover are those who possess private information well before the bid is announced and who trade on it. This is referred to as the insider trading. On the one hand this is illegal as it constitutes a transfer of wealth from uninformed to informed investors. However, at the same time, this trading may be beneficial as it makes the market fully efficient, since stock will then reflect publicly as well as privately available information. This issue is debatable.

AstraZeneca share price performance May 2013 to June 2014 June blog

Author: Meziane Lasfer

Meziane is Professor of Finance at Cass Business School, City University London. His research interests include Corporate Finance, Governance and Capital Markets. He has published widely in top international academic journals such as Journal of Finance, Journal of Finance and Quantitative Analysis, Journal of Banking and Finance, Journal of Corporate Finance, Financial Management, European Financial Management, and National Tax Journal. His research was widely reported in the press and was sponsored by the National Association of Pension Funds (NAPF), the Finance Lease Association (FLA), Morley Asset Management, ICAEW, Donaldsons and Land Securities-Trillium. He is ranked among the top 20 top researchers in Europe*. He is on the editorial board of a number of journals. His outstanding teaching performance led him to win the First Dean’s Prize for Teaching Excellence in 1998, and in 2003, 2006 and 2008. He was nominated for Economist Intelligence Unit Business Professor of the Year award in 2012**. He was an external consultant at the Financial Services Authority (FSA), and external examiner at London Business School, London School of Economics, Birmingham Business School and Cranfield School of Management. His previous and current visiting professor positions include HEC Paris, University Paris Dauphine, EDHEC Business School in Nice, and Catolica University in Lisbon. * Chan et al (2011) Financial Research in the European Region: a Long-Term Assessment (1990–2008), European Financial Management, , Vol 17 (2), pages 391–411, March 2011. ** See

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