Explaining Merger and Acquisition Premiums in the U.S. Electric and Natural Gas Sectors in a Period of Deregulation from 1990-2012

This study aims to explain the variance in premiums, or the price paid for a target firm’s equity above its market value, in mergers and acquisitions with natural gas and electric target firms from 1990-2012, a period characterized by industry deregulation. Using a sample of 130 transactions, we test factors that have been shown to be related to premiums in general merger and acquisition studies as well as theorize and test new explanations for premium sizes. We find that premiums offered in our sample of natural gas and electric merger and acquisition transactions are smaller for stock transactions, are positively related to the ratio of acquirer to target firm size, and are negatively related to the percentage of target firm revenue derived from electric operations.