Firm A announces that it is planning to merge with Firm B. Everyone is sure that the merger will go through.

• Firm As market value before the announcement is $1 billion and Firm Bs market value before the announcement is $500 million.
• On the announcement date, Firm As stock return was -2%, the market return was -1%, and Firm Bs stock return was positive and equal to 4%

Based on the combined market reaction on Firm A and Firm B, what is the expected dollar amount of value created or destroyed by the merger?

Use event study methodology and estimate this by calculating the (abnormal) dollar value change in the market values of both firms and add the two numbers together. E.g. if you were to find that the announcement causes Firm As market value to increase by $1 million and Firm Bs market value to increase by $2 million, the numbers suggest that the merger creates $3 million in value.

Use the market return to calculate the abnormal returns on both stocks. If you find that the merger destroys value, remember to put a minus sign in front of your answer. Give your answer in millions of dollars (e.g., if the answer is $123 million, write 123).