The performance of UK firms acquiring large cross-border and domestic takeover targets

Abstract

This paper focuses upon cross-border acquisitions. A three-way comparison is made between the post-takeover performance of UK acquirers of domestic UK, US, and Continental European targets between 1991 and 1996. This study examines if UK firms acquiring large takeover targets experience cumulative abnormal returns significantly different from zero up to two years after the acquisition. This study finds that UK firms acquiring large takeover targets experience negative cumulative abnormal returns over the period examined, at various significance levels. Furthermore, the study finds that the post-takeover performance of UK firms acquiring UK targets is superior to that of UK firms acquiring US targets. In turn, the performance of UK firms acquiring US targets is better than that of UK firms acquiring Continental European targets. If this trend continues, the consequences for institutional investors and pension funds, which respond to a major takeover by increasing their holdings in the acquirer, could be serious. The shares they are buying are the very companies we show to be underperforming. And the particularly poor performance of UK companies acquiring in Europe suggests that this anomaly may become even more significant as European cross-border activity gathers pace.

An Analysis of Short-Term Performance of UK Cross-Border Mergers and Acquisitions by Chinese Listed Companies

“…Danbolt (1995) made a comparison study for acquiring firms from various countries and concluded that UK acquiring firms earn significant negative abnormal returns over the event window from -8 to +5 months. Aw and Chatterjee (2004) confirmed similar findings in their articles based on the average return model and MM. They found that acquiring companies experienced a negative performance ranging from -1.2% to -8.07% in cross-border merger and acquisition activities.…”

Do cross border and domestic acquisitions differ? Evidence from the acquisition of UK targets

“…Despite this, much of the empirical work on the UK focuses on outward acquisitions (Aw & Chatterjee 2000: Gregory & McCorriston 2005: Conn et al,. 2005) with only Danbolt (1995), (2004) and Danbolt & Maciver (2012) focusing on inward acquisitions into the UK.…”

Wealth creation of mergers in downturn markets

“…The value creation potential of cross-border transaction for shareholders of the bidder remains unclear. Studies report positive value effects of cross-border acquisitions (Gleason et al 2002;Chari et al 2010 for emerging market targets) neutral effects (Gregory and McCorriston 2005), and negative effects (Aw and Chatterjee 2004;Ferreira et al 2010). Carapeto et al (2010) analyze acquisitions of distressed targets.…”

“…During weak markets acquirers are more likely to have undervalued stock and would potentially over-pay for assets when using shares instead of cash. H2: Share transactions perform stronger in boom markets while cash transactions are favorable in weak markets Recent studies document that conglomerate and cross-border transactions may create less value for shareholders of bidders (Devos et al 2009;Hoberg and Philiips 2010;Aw and Chatterjee 2004). A frequently provided explanation is the increased complexity of transactions in new industries and markets caused by more difficult integration processes.…”