By Miguel Antón, José Azar, Mireia Giné & Luca X. Lin –
Acquisitions are on average value-destroying for acquirer shareholders, while it has been shown that non-merging rivals generally gain after such “bad deals.” Value-destroying acquisitions have been largely attributed to managerial discretion, yet why do shareholders approve such decisions? This article illustrates that acquirer shareholders holding a diversified industry portfolio can benefit from value-destroying acquisitions, as they can internalize the gains by non-merging rivals they hold. When acquirer shareholders have high rival ownership, the synergy level required to merge is lower and “bad deals” are more likely to be completed, providing a rationale to why value-destroying acquisitions may get approved. Therefore, mergers that would seem irrational without substantial efficiencies can actually be rational due to common ownership, and common ownership can lead to higher levels of merger activity.
