A Case Study of the Local Bank Merger: Is the Acquiring Entity Better Off?

Abstract

The case study involves the merger between CIMB (previously known as Bumiputera Bank Berhad) and Southern Bank Berhad (SBB). CIMB Group and Southern Bank, being the target bank is the nation’s second-smallest lender, taken over by CIMB 15 March 2006. The objective of the study is to investigate whether there is any significant difference in the performance of the acquiring company (CIMB) between pre-merger and post-merger periods. This paper uses a sample period of three years crossing-over the announcement date. The performance measure is based on the daily and weekly returns are computed based on the share. Analysis on the daily returns is ranging from 30 days to 360 days, whereas, weekly returns are analyzed using a range of 7 to 78 weeks. A paired sample t-test is adopted. The findings conclude that there are no significant differences between the pre-merger and post-merger periods and hence, on average total share holder value is not really affected by the announcement of the M&A.  However, the results reveal that acquiring firms are bound to experience positive returns in the long run not in the short run.