Value creation in information-based industries through convergence: A study of U.S. mergers and acquisitions between 1993 and 2005

According to the International Engineering Consortium (IEC), the realignment and consolidations currently underway in information-based industries is likely to result in the five traditional information industries (photography, publishing, computing, telecommunications and entertainment) converging into three new sectors: information content providers, information highways, and information appliances. We investigated the impact of mergers and acquisitions on value creation both within and across these sectors by estimating the stock marketʹs response to acquiring firms around the announcement date of their merger. Using data on 2421 mergers and acquisitions between 1993 and 2005 and employing the well-established event study methodology, we found that most acquirers received a target within the same sector or industry and that the related acquisition strategies brought synergistic gains resulting in positive wealth change for the acquiring firmʹs shareholders. The few firms that pursued an unrelated diversification strategy that lowered operating risk experienced no significant change in shareholder wealth. Our results contrasted with the zero or negative wealth change found for acquiring firms in general (as reported in the finance literature) but were consistent with the positive wealth change for acquirers in the telecommunications industry found in recent studies.