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A study of justification of the buyers' synergetic optimism in major M&A deals of 2008–2014 involving Russian mining enterprises

Vol. 16, Iss. 1, JANUARY 2017

Article PDF Version

Received: 16 June 2016

Received in revised form: 12 August 2016

Accepted: 12 September 2016

Available online: 27 January 2017

Subject Heading: INVESTMENT ANALYSIS

JEL Classification: G32, G34, L61, L65

Pages: 93-104

https://doi.org/10.24891/ea.16.1.93

Subject The article addresses goodwill recognized in financial statements of the largest participants of major M&A deals over 2008–2014 involving Russian mining enterprises, and the results of its subsequent annual test for impairment (2009–2015).
Objectives The study aims to reveal whether the acquisitions at the price exceeding the fair value of the acquiree's assets in major M&A deals involving Russian mining companies are justified, and to compare the findings with those of my earlier study on the largest Russian M&A deals, in which the goodwill was recognized.
Methods I analyzed financial statements of Russian mining enterprises that participated in major M&A deals over 2008–2014, and identified the companies, which recognized goodwill as a result of acquisition, and subsequently reported its impairment. For enterprises that did not report goodwill impairment by 2015, I made a comparison of return on equity in the year preceding the year of M&A, and in 2015.
Results I found that goodwill impairment was recognized in almost half of the considered transactions. The return on equity of buyers who did not report goodwill impairment in their financial statements decreased significantly in most cases. These facts enable to say that almost all of the mergers and acquisitions involving Russian mining enterprises with recognized goodwill were carried out at unreasonably high prices.
Conclusions and Relevance The article may be useful for all those interested in integration processes in the Russian mining industry from the perspective of unique statistical material presentation.

Keywords: mergers and acquisitions, mining, synergetic effect, goodwill, impairment

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