The value-added in strategic merger : A case study from Chinese port industry restructuring

Abstract: In the process of Chinese central companies’ restructuring, the strategic merger is becoming the popular trend nowadays. The thesis chooses a specific case of Shanghai International Port Group (hereafter referred to SIPG) stock swap absorption merging Shanghai Port Container Company (hereafter referred to SPCC) which is the listed subsidiary company of SIPG for initial public offering in the whole happened in 2006. From the two aspects of financial indicators and market reaction, the thesis uses the method of financial analysis and event study analysis to do the value-added research about the case. One purpose of the research is to measure the current and follow-up value-added at and after the merger. Another purpose of the research is to find whether the value-added measured is abnormal or reflects the true intrinsic value. In this paper, the Economic Value-added (hereafter referred to EVA), the Market Value-added (hereafter referred to MVA) and the Future Growth Value (hereafter referred to FGV) are used to measure the current and follow-up value added at and after the stock swap absorption merger between SIPG and SPCC. Through the research on the pivotal time point, the horizontal comparison of the EVA, MVA and FGV in the same time point and the vertical comparison of the value-added among different time points are taken respectively, which puts the emphasis on the research of the value-added before and after the merger in 2006 (2005, 2006) and the follow-up two years value-added after merger (2007, 2008).The analysis finds that both the economic value-added and the market value-added after the merger are above zero. The research shows that the market value-added is far more than the economic value-added and the future growth value has high proportion in the market value, which indicates the market value-added is more caused by the market anticipation than the incremental true intrinsic value and the economic value. In this paper, event research method is used to do the research about the market response / reaction on the stock swap absorption merger between SIPG and SPCC. The event study which is based on the historical data of stock transactions chooses the appropriate event window, observes the change of stock price, calculates the abnormal return (hereafter referred to AR) and cumulative abnormal return (hereafter referred to CAR), and then detects whether the market value-added of listed company is abnormal or not. The study concludes that the market has the positive reaction about share swap absorption merger between SIPG and SPCC. The event of share swap merger can assuredly bring short-term abnormal value-added. Finally, through combining the research findings and focusing on the value-added of companies before and after the merger, the thesis proposes some suggestions to the value manager of companies from financial management, corporate strategy, market tactics and information asymmetry problem which can help value managers to realize the companies’ goal of maximizing the value.