The effect of mergers and acquisitions on shareholder wealth of listed petroleum companies in Kenya

Abstract

The purpose of this study was to establish the effects of mergers and acquisitions on shareholder wealth of listed petroleum companies in Kenya. The population comprised of the listed petroleum companies in Kenya. The sample comprise of two companies that are listed in the NSE at the time of the merger, kenolkobil and total. The observations were centered within an 11-day event window surrounding when the announcement for merger was made. Following Brown and Warner (1985), this study employed event study market methodology to determine the effect of shareholders wealth. The Market Model was used and residuals were tested to determine whether or not merger events provided positive or negative abnormal returns to the participants. It also provided a basis for examining the issue of whether or not shareholder wealth was enhanced by mergers. Key findings of the study were two-fold. First, the study established that the share prices of the two sampled firms did not exhibit significant changes within an 11-day event window. The results imply that the past Kenyan petroleum industry M&As were not wealth creating projects for the shareholders of both the bidding entity and the combined entity. Secondly, the findings showed that the shareholders‟ total cumulated return had not significantly changed due to announcement (or approval) of a takeover bid. The study concludes that past Kenyan Petroleum companies M&As were not wealth creating projects for the shareholders of both the bidding entity and the combined entity. The study recommends that listed companies should be careful when deciding to undergo merger and acquisition activity.