Too Big to Marry - A Quantitative Study of M&A Transactions Cancelled Due to Antitrust Authority's Veto in the United States and Europe

Abstract: This study examines M&A transactions that have been terminated either due to strong antitrust scrutiny or an outright veto. In particular, the examination uses an event study method on the stock prices of involved companies as well as a difference-in-difference (DID) analysis on financial KPIs to determine the consequences of this event for the companies, their management as well as shareholders, with a sample of 91 terminated transactions and 136 companies distributed across the last twenty years. We find that such a termination event has significant negative effects on the stock prices and therefore on the wealth of shareholders, both in the short-term around the event as well as long-term up to a year after the event. Targets have much greater negative abnormal returns compared to acquirers, whereas there is no difference in results between the North American and European subsamples. While the event study results and our key hypothesis would therefore also expect declining performances with regards to the financial KPIs of acquirers, the performance does not differ from a basket of peers, resulting in neither an under- nor an outperformance. Judging from these results, we uncovered a discrepancy between the expectations assigned by the market of the consequences of the terminations with the actual development in companies' operational performance.