DEREGULATION OF ANY INDUSTRY OFTEN LEADS TO consolidation and merger, which frequently bolsters the involved companies' stock prices.
In the SBC/Pacific Telesis merger, intervenors argued before the California Public Utilities Commission that the change in the value of Pacific Telesis' stock was a measure of the merger's "benefits" to shareholders. They said the PUC should force the merged company to rebate half those benefits to ratepayers.
Analysts use stock market information in an "event study" to measure the economic impact of a particular event. This method is based on the "efficient markets hypothesis," which states that all publicly available investment information is incorporated into stock prices. Event study analysis "values" an event based on the interactions of many self-interested, objective and rational economic agents. The analysis would render agents less prone to individual bias and questionable assumptions that may creep into other methods, such as discounted cash flow analysis or the use of multiples.
While event studies can prove powerful, several factors complicate the issue. For example, it is sometimes unclear when relevant information became available; merger news can leak out before a formal announcement is made. Also, the impact of a merger announcement may be diluted by doubts that it will survive regulatory review. Increased competition may make it more difficult for investors to assess a merger's impact.