Their study, "How Much Is Too Much: Are Merger Premiums Too High?," concludes that although UK public buyers are more likely to be making less money within three years after acquisitions, high merger premiums are not to blame for those losses. Therefore, UK shareholders usually do not reap long-term benefits from M&A, according to the paper, which is slated for publication in the January 2008 issue of the European Business Management journal. 

Research over the past few years in the UK has indicated that most public companies, after completing mergers, experience a downturn in revenue and earnings, says one of the study's co-authors, Huainan Zhao, a professor at Cass Business School in London.  

One of the study's important findings was that, in its sample, the acquirers paying higher premiums did not fare worse than the buyers offering lower multiples, as measured by stock performance and financial results, which disproves the notion that large premiums provoke post-merger losses.  

The study also concluded that cash offers, rather than stock payment proposals, usually raise the long-term stock prices of acquirers.   The study found that the 30% of acquirers that paid high premiums coughed up "excessive" premiums that averaged 89%. Some paid more than 100%. The 89% premium is about nine times larger than the 10% average premium paid by the 30% of acquirers who paid the lowest percentage. It also suggests that synergy prospects and overconfidence commonly lead acquirers to offer higher premiums. 

The paper was based on data from 396 public mergers in the UK that closed between 1985 and 2004. The analyzed mergers had to be worth at least $1 million. Nevertheless, 90% of the deals were above $10 million, 55% were over $50 million and 42% were $100 million or more.

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