The Performance of the European Market for Corporate Control

Evidence from the 5th Takeover Wave

M. Martynova, L.D.R. Renneboog

Research output: Working paperDiscussion paperOther research output

423 Downloads (Pure)

Abstract

For the 5th takeover wave, European M&As were expected to create significant takeover value: the announcement reactions were strongly positive for target shareholders (more than 35%) and the bidding shareholders also expected to gain a small though significant increase in market value of 0.5%.While, most of the expected takeover synergies are captured by the target firm shareholders, The combined value creation is significantly positive.However, the expected value strongly depends on the wave pattern, with optimistic expectations at the climax of the wave and a more pessimistic outlook at the decline.We establish that the characteristics of the target and bidding firms and of the bid itself have a significant impact on takeover returns.While some of our results have been documented for other markets of corporate control (e.g.US), a comparison of the UK and Continental European M&A markets reveals that the corporate environment is an important factor affecting the market reaction to takeovers: (i) In case a UK firm is taken over, the abnormal returns exceed those in bids involving a Continental European target.(ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on the takeover returns in the UK and a negative one in Continental Europe.(iii) Weak investor protection and low disclosure environment in Continental Europe enable bidding firms to invent takeover strategies that allow them to act opportunistically towards target firm's incumbent shareholders; more specifically, partial acquisitions and acquisitions with undisclosed terms of transaction.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages53
Volume2006-118
Publication statusPublished - 2006

Publication series

NameCentER Discussion Paper
Volume2006-118

Fingerprint

Market for corporate control
Bidding
Shareholders
Bid
Market value
Announcement
Disclosure
Investor protection
Market reaction
Value creation
Expected value
Abnormal returns
Corporate control
Synergy
Incumbents
Factors
Large shareholders
Partial acquisitions

Keywords

  • takeovers
  • mergers and acquisitions
  • diversification
  • hostile takeover
  • means of payment
  • cross-border acquisitions
  • private target
  • partial acquisitions

Cite this

Martynova, M., & Renneboog, L. D. R. (2006). The Performance of the European Market for Corporate Control: Evidence from the 5th Takeover Wave. (CentER Discussion Paper; Vol. 2006-118). Tilburg: Finance.
@techreport{af864e61b989415eba5873ddc90037c0,
title = "The Performance of the European Market for Corporate Control: Evidence from the 5th Takeover Wave",
abstract = "For the 5th takeover wave, European M&As were expected to create significant takeover value: the announcement reactions were strongly positive for target shareholders (more than 35{\%}) and the bidding shareholders also expected to gain a small though significant increase in market value of 0.5{\%}.While, most of the expected takeover synergies are captured by the target firm shareholders, The combined value creation is significantly positive.However, the expected value strongly depends on the wave pattern, with optimistic expectations at the climax of the wave and a more pessimistic outlook at the decline.We establish that the characteristics of the target and bidding firms and of the bid itself have a significant impact on takeover returns.While some of our results have been documented for other markets of corporate control (e.g.US), a comparison of the UK and Continental European M&A markets reveals that the corporate environment is an important factor affecting the market reaction to takeovers: (i) In case a UK firm is taken over, the abnormal returns exceed those in bids involving a Continental European target.(ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on the takeover returns in the UK and a negative one in Continental Europe.(iii) Weak investor protection and low disclosure environment in Continental Europe enable bidding firms to invent takeover strategies that allow them to act opportunistically towards target firm's incumbent shareholders; more specifically, partial acquisitions and acquisitions with undisclosed terms of transaction.",
keywords = "takeovers, mergers and acquisitions, diversification, hostile takeover, means of payment, cross-border acquisitions, private target, partial acquisitions",
author = "M. Martynova and L.D.R. Renneboog",
note = "Subsequently published in European Financial Management (2011) Pagination: 53",
year = "2006",
language = "English",
volume = "2006-118",
series = "CentER Discussion Paper",
publisher = "Finance",
type = "WorkingPaper",
institution = "Finance",

}

Martynova, M & Renneboog, LDR 2006 'The Performance of the European Market for Corporate Control: Evidence from the 5th Takeover Wave' CentER Discussion Paper, vol. 2006-118, Finance, Tilburg.

The Performance of the European Market for Corporate Control : Evidence from the 5th Takeover Wave. / Martynova, M.; Renneboog, L.D.R.

Tilburg : Finance, 2006. (CentER Discussion Paper; Vol. 2006-118).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - The Performance of the European Market for Corporate Control

T2 - Evidence from the 5th Takeover Wave

AU - Martynova, M.

AU - Renneboog, L.D.R.

N1 - Subsequently published in European Financial Management (2011) Pagination: 53

PY - 2006

Y1 - 2006

N2 - For the 5th takeover wave, European M&As were expected to create significant takeover value: the announcement reactions were strongly positive for target shareholders (more than 35%) and the bidding shareholders also expected to gain a small though significant increase in market value of 0.5%.While, most of the expected takeover synergies are captured by the target firm shareholders, The combined value creation is significantly positive.However, the expected value strongly depends on the wave pattern, with optimistic expectations at the climax of the wave and a more pessimistic outlook at the decline.We establish that the characteristics of the target and bidding firms and of the bid itself have a significant impact on takeover returns.While some of our results have been documented for other markets of corporate control (e.g.US), a comparison of the UK and Continental European M&A markets reveals that the corporate environment is an important factor affecting the market reaction to takeovers: (i) In case a UK firm is taken over, the abnormal returns exceed those in bids involving a Continental European target.(ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on the takeover returns in the UK and a negative one in Continental Europe.(iii) Weak investor protection and low disclosure environment in Continental Europe enable bidding firms to invent takeover strategies that allow them to act opportunistically towards target firm's incumbent shareholders; more specifically, partial acquisitions and acquisitions with undisclosed terms of transaction.

AB - For the 5th takeover wave, European M&As were expected to create significant takeover value: the announcement reactions were strongly positive for target shareholders (more than 35%) and the bidding shareholders also expected to gain a small though significant increase in market value of 0.5%.While, most of the expected takeover synergies are captured by the target firm shareholders, The combined value creation is significantly positive.However, the expected value strongly depends on the wave pattern, with optimistic expectations at the climax of the wave and a more pessimistic outlook at the decline.We establish that the characteristics of the target and bidding firms and of the bid itself have a significant impact on takeover returns.While some of our results have been documented for other markets of corporate control (e.g.US), a comparison of the UK and Continental European M&A markets reveals that the corporate environment is an important factor affecting the market reaction to takeovers: (i) In case a UK firm is taken over, the abnormal returns exceed those in bids involving a Continental European target.(ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on the takeover returns in the UK and a negative one in Continental Europe.(iii) Weak investor protection and low disclosure environment in Continental Europe enable bidding firms to invent takeover strategies that allow them to act opportunistically towards target firm's incumbent shareholders; more specifically, partial acquisitions and acquisitions with undisclosed terms of transaction.

KW - takeovers

KW - mergers and acquisitions

KW - diversification

KW - hostile takeover

KW - means of payment

KW - cross-border acquisitions

KW - private target

KW - partial acquisitions

M3 - Discussion paper

VL - 2006-118

T3 - CentER Discussion Paper

BT - The Performance of the European Market for Corporate Control

PB - Finance

CY - Tilburg

ER -