So, the Fyffes-Chiquita merger is off, perhaps. And this is bad news for Fyffes why? They should breath a sigh of relief
Look at the chart of the share prices. See the massive leap in Fyffes in May when Fyffes announce an all shares takeover of Chiquita. See the share reaction of Chiquita also. Now see the reaction today
This is baffling. The overwhelming evidence for mergers and takeovers is that there is rarely value to the acquirer. The most comprehensive study on mergers and acquisitions is that of Martynova and Renneborg 2008, who look at data over 100 years, and which states “The contrast between the large takeover returns to target firms and the frequently negligible returns to bidding firms is striking. On average, bidder shareholders realize announcement abnormal returns, which are statistically indistinguishable from zero.” And its even worse in the long term “M&As fully financed by equity yield significantly negative long-term returns, whereas all-cash bids are followed by positive returns” . Only 1/5 of takeovers result in increased profitability for the merged entity. They state “A substantial decline in the acquiring firms’ share prices is observed over the first five years subsequent to the event. This suggests that the anticipated gains from takeovers are on average non-existent or overstated.”
Rather than cheer the announcement and hiss the delay the market, were it composed of rational actors seeking to maximise wealth they should do precisely the opposite. Fyffes will, if they are a ‘normal’ company, now engage in a bidding war, jacking up the return to Chiquita and further eroding their shareholder value.
Marina Martynova, Luc Renneboog, A century of corporate takeovers: What have we learned and where do we stand?, Journal of Banking & Finance, Volume 32, Issue 10, October 2008, Pages 2148-2177,