Consolidation and communication in European energy markets

A substantial minority of bidding firms disclose synergy forecasts during mergers and acquisitions (M&A). Using these hand‐collected synergy announcements, the purpose of this paper is to investigate synergy characteristics as well as explore their shareholder wealth effects within the European energy sector between 1998 and 2010.

The authors employ the market model event study methodology to infer short‐term wealth implications as well as the Fama French 3 Factor model to estimate long‐term effects.

The paper provides evidence for a positive correlation between the synergy size and combined bidder and target returns. However, the market discounts disclosed synergies to a degree which reveals that managers in the energy sector are likely to overestimate the actual, realizable size of the emerging synergies. Additionally, the results show that post merger long‐term returns of synergy disclosing firms remain significantly positive, indicating that projected synergies are continuously realized.

As the first study the paper shows that a synergy disclosure effect exists within the European market and hence demonstrates that synergy forecasts serve as an efficient instrument to decrease existing information asymmetries.