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Shareholder wealth effects of European domestic and cross-border takeover bids

By Marc Goergen and Luc Renneboog

Abstract

In this paper, we analyse the short-term wealth effects of large (intra)European takeover bids. We find large announcement effects of 9 % for target firms and a cumulative abnormal return that includes the price run-up over the two-month period prior to the announcement date of 23%. However, the share price of the bidding firms reacts positively with a statistically significant announcement effect of only 0.7%. We also show that the status of a takeover bid has a large impact on the short-term wealth effects of target’s and bidder’s shareholders, with hostile acquisitions triggering substantially larger price reactions than friendly mergers and acquisitions. When a UK target or bidder is involved, the abnormal returns are almost twice as high as bids involving both a Continental European target and bidder. We also find strong evidence that cash offers trigger much larger share price reactions than all-equity offers or combined bids consisting of cash, equity and loan notes. A high market-to-book ratio of the target leads to a higher bid premium, but triggers a negative price reaction for the bidding firm. Also, our results suggest that bidding firms should not diversify by acquiring target firms that do not match their cor

Topics: Mergers and acquisitions, domestic and cross-border takeover bids, hostile takeovers, the market for corporate control, short term wealth effects
Year: 2002
OAI identifier: oai:CiteSeerX.psu:10.1.1.195.4736
Provided by: CiteSeerX
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