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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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V. Value Creation in Pharmaceutical In-licensings and its underlying Value Drivers


V.1 Literature Review and Literature Contribution

Whereas event study methodology has become standard in M&A research, the area for strategic alliances seems rather untapped. However, those conducted present positive abnormal returns to joint ventures and strategic alliances (McConnell and Nantell, 1985; Koh and Venkatraman, 1991; Chan et al., 1997; Das et al., 1998; Anand and Khanna, 2000; Dyer et al., 2002; Frederikslust and Schut, 2005; Campart and Pfister, 2004; Oxley et al., 2009). Nonetheless, there is also a broader recognition in general literature that many alliances fall short of expectations (Kogut and Singh, 1988 and Kogut, 1991; Bleeke and Ernst, 1993; Lam, 2004 and 2004 ii). Then, what is it that destroys and creates value in alliances? Research has moved on to find explanatory variables, industry-, company- and alliance-specific to better understand why some firms profit more than others from alliance announcements.

In a cross-industrial scope, the degree of diversification of an alliance and the similarity of activities and competencies of the individual partners have been investigated as potential determinants of success for which, however, the literature gives conflicting feedback (Balakrishnan and Koza, 1993; Koh and Venkatraman, 1991; Chan et al., 1997 and Frederikslust and Schut, 2004). Likewise the ownership structure and therewith the question of strategic control in joint ventures has also been discussed: Koh and Venkatraman (1991) and Frederikslust and Schut (2004) found that the partner with more control within an alliance produces higher returns, whereas Bleeke and Ernst (1993)...

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