Mergers and Acquisitions in Europe

Marina Martynova
Cornerstone Research; Tilburg University – Department of Finance

Luc Renneboog
Tilburg University – Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

January 2006

ECGI – Finance Working Paper No. 114/2006
CentER Discussion Paper Series No. 2006-06

Abstract:

This paper provides a comprehensive overview of the European takeover market. We characterize the main features of the domestic and cross-border corporate takeovers involving European companies in the period 1993-2001. We provide detailed and comparable information on the size and dynamics of takeover activity in 28 Continental European countries, the UK and Ireland.

The data is supplemented with the characteristics of takeover transactions, including the type of takeovers (negotiated acquisition or tender offer), bid attitude (friendly or hostile), payment method (all-cash, all-equity, or mixed deals), legal status of the target firm (public or private), takeover strategy (focus or diversifi cation), amongst other factors. In addition, we investigate the shortterm wealth effects of 2,419 European mergers and acquisitions. We find announcement effects of 9% for target fi rms compared to a statistically signifi cant announcement effect of only 0.5% for the bidders. Including the price run-up, the share price reaction amounts to 21% for the targets and 0.9% for the bidders.

We show that the estimated shareholder wealth effect strongly depends on the different attributes of the takeovers. The type of takeover bid has a large impact on the short-term wealth effects for the target firm shareholders with hostile takeovers triggering substantially larger price reactions than friendly transactions. When a UK target is involved, the abnormal returns are higher than those of bids involving a Continental European target.

There is strong evidence that the means of payment has a large impact on the share prices of both bidder and target.

Mergers and Acquisitions in Europe

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