Mergers and Acquisitions by South African Mining Companies as a Strategy to Create Value for Shareholders: Evidence Between 1998 and 2022

Abstract

The objective of this study was to determine if acquiring of assets by mining companies has been beneficial to the shareholders from 1998 to 2022. This study seeks to answer the null hypothesis stating that transaction announcement does not create cumulative average abnormal return for buying mining companies and does not create value for shareholders. Data for the study was acquired from Standards and Poor’s database and streamlined down to 41 transactions. The samples were then grouped into full sample, diversified metal and mining, gold, precious metals, steel, and 1998 to 2022 five year periods sample grouping. This quantitative research uses an event study that serves as a statistical method to evaluate the influence an event has over the value of a company. The event window includes buying company share price starting at 250-days preceding the announcement date and 10 days after. Then, 21 days (-10, 0, 10), was strategically chosen to capture results 10 days before and after the event announcement. This method allows the computation of average abnormal returns and cumulative average abnormal returns. The results are presented using a structure that includes: sample descriptive statistics, average abnormal returns and cumulative average abnormal returns, cumulative average abnormal returns weighted, solver (to minimise sample variance), correlation, covariance and efficient frontier (to plot a graph which conservative to aggressive investors can extract return on investment). All samples cumulative average abnormal returns were plotted on a graph and on average, it reduces leading up to event day and increases after the event day. The null hypothesis was accepted across all sample groups and the study outcomes indicate that acquirers did not generate statistically significant positive abnormal returns. An opportunity exists for researchers to research gold companies and the value created using a long-term event study methodology.