The impact of acquisition on the financial performance of energy companies : ARAMCO's acquisition of SABIC-event study

Abstract EN

The current study aims to identify the impact of acquisition on the market value of the acquirer company, ARAMCO.

The first objective of the study is to point out the impact of acquisition on the company's stock prices; while the second objective is to estimate the company's financial performance before and after the acquisition, which leads to determine the changes in the company's financial health due to its acquisition.

An event study has been carried out on ARAMCO's stock returns by estimating the abnormal return for 40-day window The hypotheses will be tested using the (Paired Sample t-test), Following the event study, a financial analysis has been conducted to examine the company's financial performance before and after its acquisition from 2017 to 2021.

Profitability and leverage ratios have been measured as well as comparing the company's Return on Average Capital Employed with its Weighted Average Cost of Capital to determine the company's value creation.

The study showed a significant impact of the acquisition on the market value of ARAMCO, in addition to improvement in the company's profitability after the acquisition; nevertheless, the company had a higher rate of Return on Average Capital Employed in the year following to its acquisition.