Research On The Value Effect Of High Premium M&a In The Pharmaceutical Industry

Affected by the medical reform, a series of policies, such as drug price reduction, lower-price drug protection and the limitation of antimicrobial drug, force the industry profit margins continue to reduce gradually. The situation of pharmaceutical enterprise merger and acquisition for efficiency increased year by year, and the high premium phenomenon in the pharmaceutical enterprise M&A is increasingly frequent. The relationship between merger premium and the firm value proposition have caused the attention of the academia, but results have no unified conclusion. The existing literature is mainly empirical research, and some view that premium M&A is due to asymmetric information, management overconfidence or opportunistic behavior, etc., so that the acquisition premium is negatively related to the enterprise value. The others view that premium M&A is caused by the anticipated synergies, and it has the ability to create value. However, because the lack of unified standards for the "premium", empirical research on the phenomenon of high premium M&A is relatively rare. This paper adopts case study method, and in the frame of high premium M&A, M&A value effect, the reason of firm value change, and to discuss the question of whether and why high premium M&A can create value.This paper adopts the method of case study, as of 2013, the highest premium M&A in the pharmaceutical industry, Yibai Pharmaceutical merges Baixiang Pharmaceutical, as samples, to investigate the relationship between the high premium M&A and firm value. Firstly, we comb the literature of acquisition premium and its influence factors, the relationship between M&A premium and the enterprise value, and analyze the mechanism of the pharmaceutical industry premium M&A create value. Secondly, observe the basic situation of Yibai Pharmaceutical merges Baixiang Pharmaceutical, and comparing it with the same industry average acquisition premium. Thirdly, this paper uses CAR calculation method and BHAR calculation method respectively to observe the short-term market performance and long-term market performance after the merger, and uses factor analysis method to analyze financial performance. Fourthly, this paper explores Baixiang Pharmaceutical’s off-balance-sheet assets and the synergistic effect to analyze the mechanism of value creating in this case.My study found: firstly, Yibai Pharmaceutical’s high premium M&A create value finally. Based on the CAR in the 5 days and BHAR in the 16 months, it is of good short-term market reaction and long-term market performance. Comparing with the two sample companies which have most similar on the brand and scale, we find that the financial performance got promoted. Due to the direction of investor confidence, market performance is relatively better than financial performance. Secondly, the reason why Yibai Pharmaceutical’s high premium M&A can create value is that acquirers obtained valuable intellectual property rights, exclusive products and brand effect, etc. The improvement of sales model and the expansion of sales channels has brought the management synergy, and the integration of large-scale construction and the category structure has brought the operating synergies, and the improvement of financial structure and tax avoidance has brought good financial synergies, in addition, it also has technical synergies. All these synergistic effect greatly improved the value effect of M&A. The research conclusion in this article provides a case presentation for the research of pharmaceutical industry high premium M&A value effect, and providing the certain enlightenment significance for the investors’ decision-making.