TY  - JOUR
AU  - Hoberg,Gerard
AU  - Phillips,Gordon M.
TI  - Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14289
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14289
L1  - http://www.nber.org/papers/w14289.pdf
N1  - Author contact info:
Gerard Hoberg
Robert H. Smith School of Business
University of Maryland
4423 Van Munching Hall
College Park, MD 20742
Tel: 301/405-9685
Fax: 301/405-0359
E-Mail: ghoberg@rhsmith.umd.edu

Gordon M. Phillips
Marshall School of Business
University of Southern California
Citigroup Center
Los Angeles, CA 90089
Tel: 213/740-0038
E-Mail: Gordon.Phillips@marshall.usc.edu
AB  - We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies.  Using novel text-based analysis of firm 10K product descriptions, we find three key results.  (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable.  (2) Targets earn lower announcement returns when similar alternative target firms exist.  (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms.  Our findings are consistent with similar merging firms exploiting synergies to create new products and increase their product differentiation relative to ex-ante rivals.
ER  -