Bidder motivation and long-term performance of UK mergers (original) (raw)
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The Motivation for Takeovers in the UK
Journal of Business Finance & Accounting, 2008
The motives for takeovers in the UK are investigated by examining the correlations between wealth gains for the target and both acquirer wealth gains and total wealth gains. The results are sensitive to whether the gains are measured over a long or short window, the method of measuring abnormal returns, and whether controls are included for the form of the bid consideration and the sign of total bid gains. There is evidence of bids motivated by synergy, but there is also evidence of the presence of hubris and weak evidence of bids with an agency motivation. Once controls for bid consideration and the sign of total gains are introduced the explanatory power of the models increases substantially and diversity of results about bid motivation also increases.
Do Bidders Gain in Related Acquisitions? Some Evidence from UK
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This study examines the performance of related bidders over short-and long-term horizons. Acquisitions are examined between companies within the same industry from a sample of completed UK takeovers between 1994 and 1998. Performance is compared to unrelated acquisitions and also size and industry control portfolios. We also examine the effects of form of financing and the preferred method of payment by larger and smaller related bidders. It is found that related takeovers occur mainly in underperforming industries. Significant differences are found in long-horizon performance with regard to bidder size and also the method of payment.
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In this paper, I review the literature on the motivations for corporate mergers and acquisitions. I first introduce the main definitions and some relevant empirical studies in the field. Secondly, I study the historical evolution of the mergers and acquisition activity in the United States, explaining the environment in which they took place. I then explain the theoretical motivations for mergers and acquisitions, focusing in rational and irrational behaviors. The controversy generated around this topic is due to the differences between managements' arguments for mergers and acquisitions and the real performance of this activity for acquirers. The main motivations and the relevant theoretical arguments and empirical results are addressed. Finally, I discuss my view about this particular process that has created so much literature in the last decades.
Acquirer type, agency monitoring and post-acquisition performance : an empirical investigation
1999
The vast literature in finance examining the impact of takeovers on the share price of the bidder and target firms finds conclusive results for targets and inconclusive results for bidders. For both the UK and the US, previous studies show target firms to experience large positive abnormal returns at the time of the bid-announcement while bidder firm shareholders experience small abnormal gains as well as losses. Previous studies also show that approximately half the acquirers experience positive post-acquisition performance. There exists a serious gap in extant knowledge on what factors lead some acquirers to experience a positive post-acquisition performance while other acquirers experience a decline in their wealth. In this study we examine whether target firm managerial resistance to a takeover may be one factor which can affect the post-acquisition performance of acquirers. By segregating our sample of acquirers by the target firm management response to a takeover we are able t...
Sources of value in takeovers: Synergy or restructuring–implications for target and bidder firms
Strategic Management Journal, 1992
c Advocates of the market for corporate control argue that takeover bids should be accepted because unsuccessful targets tend to lose market value. Other researchers argue that takeover bi& should be rejected because the combined firms often pe#orm poorly. However, missing in this debate is the infzuence of the source of takeover gains on the decision to reject or accept takeover bids. This study posits that value from takeovers can be created by synergy or restructuring. The study suggests that only if the synergy component is dominant should the target firm agree to be taken over. The study then tests the dominance of the source of value in takeovers by examining takeovers that were unsuccessful. The study concludes that, first, restructuring, not synergy, motivated the sample studied and target firms can create the same value independently. Second the need for restructuring was industry-wide. However, even if restructuring is the motive behind a takeover, the target firm has to carry out the restructuring, failing which it does not create any value. The study also suggests reasons for the ambiguous findings in the strategic management merger literature. I Also, a simple transfer of control without the physical consolidation of the assets of the two firms is unlikely to bring about any synergistic gains. These gains typically arise out of a rationalizing of the different functions-marketing, manufacturing etc-of the consolidated entity. Thus Unisys, notwithstanding their current situation, initially managed to extract substantial operating efficiencies by the physical consolidation of Burroughs and Sperry. Same is true for Kraft and General Foods.
This paper investigates the long-run performance of 106 Australian successful takeovers that took place from January 1997 to December 2003, using the buy-and-hold abnormal returns method with two different approaches: the Capital Asset Pricing Model and the Fama and French Three Factors Model. The results suggest that Australian bidders experience significantly negative abnormal returns over the three-year post-takeover period. Further analysis on the explanations of negative abnormal returns shows that stock-financed, value bidders and no-premium takeover underperformed in the long run.
Corporate Takeovers: Excess Returns and the Multiple Bidding Phenomena
Journal of Business Finance & Accounting, 1988
Although the topic of mergers has been frequently addressed in the literature, there have been few studies focusing on those mergers in which multiple bidders seek to gain control of a particular target firm. This paper compares the returns to acquired firms in single and multiple bidder acquisitions. The results indicate that immediately after the announcement of the first bid, the mean abnormal returns accumulated by targets acquired in single bid acquisitions (SBAs) and multiple bid acquisitions (MBAs) are not statistically different. However, following the announcement of the second bid, there is an evident difference between the two groups, with the targets acquired in MBAs exhibiting significantly higher abnormal returns. Moreover, this gap widens substantially as the time following the first bid elapses and second bids are announced. This insignificant difference at the time of the first bid, followed by a substantially increased gap around the second bid, precludes the commonly accepted rational competitive acquisitions hypothesis as a potential explanation of the results. In other words, the second bidder in multiple bidder situations most likely does not join the bidding as a result of observing a significantly lower first bid. If a gap would have been observed at the time of the announcement of the first bid, it might have explained the motivation of a second bidder attempting to create value through an attempted acquisition. However, since such a gap is not observed, other potential explanations should be considered.