Profitability of horizontal takeovers in the Australian industrial equity market: 1978 to 1982

This paper examines the effect of successful horizontal takeovers on the returns to the equity of the target, bidder and industry rival companies for 35 horizontal takeovers in Australia between 1978 and 1982. The evidence does not support the view held by some market commentators that such takeovers are anti-competitive and to the financial detriment of market participants. Rather, the evidence suggests that the 'failing' firm is a more accurate characterisation of the target in an industry rationalisation. Further, the subsequent profitability of the successful bidder and the remaining firms in the industry appears to be unaffected by the rationalisation over the succeeding 24 months.