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Changes in Operating Performance After M&A Deals

Student: Koshevsky Nikita

Supervisor: Irina Ivashkovskaya

Faculty: Faculty of Economic Sciences

Educational Programme: Corporate Finance (Master)

Year of Graduation: 2019

The introduction provides a brief review of the literature on the methods used in practice in assessing the effectiveness of passing M&A transactions. The main part of the work reveals the reasons why a specific M&A transaction was selected for analysis, as well as data and characteristics that allow evaluating the effectiveness of such a transaction. The paper investigates the determinants of the effectiveness of mergers and acquisitions, using the example of a deal for Rosneft to buy shares in the oil company TNK-BP. The effectiveness of the M&A transaction was assessed using three methods: the event studies method (through the analysis of abnormal excess returns by various approaches), the method of analyzing financial statements (through the analysis of public financial statements and calculating financial ratios), and the method of analysis of operational synergies creation (through the analysis of economies of scale, growth of investment efficiency and comparison of these indicators with industry). The event method revealed a positive accumulated excess return on Rosneft shares, analyzed by three approaches, only at a time interval of 6 days before the transaction and 3 days after the transaction. The approach based on the analysis of abnormal returns (through CAPM) rejected the hypothesis of the absence of abnormal returns at all time intervals observed. The results of the analysis by the method of analysis of financial statements indicate a decrease in operational efficiency in the short-term time interval, however, in the period +2 years after the transaction, almost all indicators of operational efficiency showed growth. Thus, the impact of the transaction on the shareholder value of Rosneft is ambiguous - having paid for the acquisition of TNK-BP shares and cash more than $ 56 billion in 2013, by 2017. Rosneft's capitalization declined to $ 52.3 billion, less than what the company paid for the acquisition of TNK-BP. The company's capitalization in Russian rubles decreased from 2861 billion rubles to 2075 billion in 2014, but by 2017 it grew to 3089 billion (and continued to grow further). The conclusion is the following: inconsistency of the analysis indicators obtained during the evaluation of the deal by various methods among other things indicates the influence of non-financial factors and the role of the CEO / management of the company, not taken into account in the share price or in the financial statements of the company. Keywords: M&A, company value, operational efficiency, synergy, mergers and acquisitions.

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