Merging One’s Way to the Top: The Case of AB Inbev v. Heineken

Leuven’s Den Hoorn brewery, now AB Inbev SA, has become the world’s largest brewing group by far, but critics say the company overpaid for its acquisitions. In this paper we study typical stock market reactions to the many takeover announcements by Inbev and the industry’s runner-up, Heineken. Unlike Heineken’s, the market leader’s takeover announcements were met by, on average, a –2 percent price reaction in the stock market in the announcement month, but most of that is already undone the next month. For Heineken, the same pattern shows up, only faster: the V-reaction takes a few weeks rather than a few months. Such V-reactions may actually reflect a temporary rise in uncertainty rather than overpaying. The finding that reactions are reversed and heterogeneous across firms raises issues of interpretation and optimal test design of event studies