Do mergers and acquisitions create shareholder wealth in the pharmaceutical industry?

The purpose of this paper is to analyze mergers and acquisitions (M&A) focusing on the US pharmaceutical industry in the period 1981‐2004. This industry is chosen because it is global, it engages intensively in M&A which it uses to both complement and substitute for early stage research, and because the potential abnormal returns to blockbuster drugs are substantial. It is assumed that if abnormal returns to M&A exist in the short and long run, this is the industry to find them.

The study examines short‐term abnormal returns separating mergers from acquisitions and US‐based from foreign‐based M&A targets. It examined 405 mergers and acquisitions during 1981‐2004 to address the issues of our research.

Evidence of short and long‐term abnormal returns, as well as accounting and efficiency effects are found for acquisitions but not for mergers. However, the tests do suggest that mergers with US‐based targets are not value destroying. It is also found that there are differences as to the effects of acquisitions of foreign‐based, as opposed to US‐based targets.

Taken in total, the results provide support for the view that in the pharmaceutical industry, acquisitions of US‐based companies have a positive impact on wealth creation for company shareholders.