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Pharma M&A versus alliances and its underlying value drivers

Are M&A or alliances the right therapy for an ailing pharmaceutical industry?- A capital market perspective


Heiko Schön

From a capital market perspective, the author analyzes Merger and Acquisitions transactions (M&A) and in-licensings in the pharmaceutical industry between 1998 and 2012. Utilizing the event study methodology, the volume shows that M&A experiences significant, negative cumulative average abnormal returns whereas in-licensings are able to create value. But what are the underlying value drivers which make a deal a success or a failure story? The author derives significant innovative determinants of success for both strategies.
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III. Value Creation in Pharmaceutical M&A and its underlying Value Drivers


III.1 Literature Review and Literature Contribution

Event studies are highly regarded in research on value creation by M&A and became its standard tool for measuring the performance of acquisitions or divestitures. One reason for the frequent use of event studies is that they allow scholars to directly test hypotheses related to firm value. To quantify the enormity of the event study literature Kothari and Warner (2007) conducted a census of event studies published in five leading journals resulting in 565 papers for the years 1974 through 2000. Two results are mostly uncontroversial: whereas the shareholders of the acquiring companies rather tend to experience wealth destructions, the shareholders from target companies enjoy significantly and high value enhancements (e.g. Bradley et al., 1988; Jarrell and Poulsen, 1989, Morck et al. 1990; Loughran and Vijh, 1997; Andrade at al. 2001; Bruner, 2002; Goergen and Renneboog, 2004; Moeller and Schlingemann, 2005). Many authors moved over from cross-industrial analyses towards industry specific ones claiming with evidence that different industries contain different value chains and hence M&A, its motives and its underlying value drivers are different, too (for banking: Houston et al., 1994 and 2001 or Beitel et al., 2004; for logistics: Kaup and Schiereck, 2008, for telecommunications: Akdogu, 2009; for the brewing industry: Metha and Schiereck, 2012; etc.).

The limited M&A research which is available for the pharmaceutical industry approaches from different angles. Danzon et al. (2007) examine the determinants of tendencies towards...

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