The performance of the European market for corporate control

Evidence from the 5th takeover wave

M. Martynova, L.D.R. Renneboog

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper presents an in-depth analysis of the performance of large, medium-sized, and small corporate takeovers involving Continental European and UK firms during the fifth takeover wave. We find that takeovers are expected to create takeover synergies as their announcements trigger statistically significant abnormal returns of 9.13% for the target and of 0.53% for bidding firms. The characteristics of the target and bidding firms and of the bid itself are able to explain a significant part of these returns: (i) deal hostility increases the target's but decreases bidder's returns; (ii) the private status of the target is associated with higher bidder's returns; and (iii) an equity payment leads to a decrease in both bidder's and target's returns. The takeover wealth effect is however not limited to the bid announcement day but is also visible prior and subsequent to the bid. The analysis of pre-announcement returns reveals that hostile takeovers are largely anticipated and associated with a significant increase in the bidder's and target's share prices. Bidders that accumulate a toehold stake in the target experience higher post-announcement returns. A comparison of the UK and Continental European M&A markets reveals that: (i) the takeover returns of UK targets substantially exceed those of Continental European firms. (ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on takeover returns in the UK and a negative one in Continental Europe. (iii) Weak investor protection and low disclosure in Continental Europe allow bidding firms to adopt takeover strategies enabling them to act opportunistically towards the target's incumbent shareholders.
Original languageEnglish
Pages (from-to)208-260
JournalEuropean Financial Management
Volume17
Issue number2
DOIs
Publication statusPublished - 2011

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Market for corporate control
Bidding
Bid
Announcement
Announcement returns
Share prices
Equity
Disclosure
Payment
Investor protection
Wealth effect
European firms
Corporate takeovers
Abnormal returns
Hostility
Synergy
Incumbents
Shareholders
Large shareholders
Hostile takeovers

Cite this

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title = "The performance of the European market for corporate control: Evidence from the 5th takeover wave",
abstract = "This paper presents an in-depth analysis of the performance of large, medium-sized, and small corporate takeovers involving Continental European and UK firms during the fifth takeover wave. We find that takeovers are expected to create takeover synergies as their announcements trigger statistically significant abnormal returns of 9.13{\%} for the target and of 0.53{\%} for bidding firms. The characteristics of the target and bidding firms and of the bid itself are able to explain a significant part of these returns: (i) deal hostility increases the target's but decreases bidder's returns; (ii) the private status of the target is associated with higher bidder's returns; and (iii) an equity payment leads to a decrease in both bidder's and target's returns. The takeover wealth effect is however not limited to the bid announcement day but is also visible prior and subsequent to the bid. The analysis of pre-announcement returns reveals that hostile takeovers are largely anticipated and associated with a significant increase in the bidder's and target's share prices. Bidders that accumulate a toehold stake in the target experience higher post-announcement returns. A comparison of the UK and Continental European M&A markets reveals that: (i) the takeover returns of UK targets substantially exceed those of Continental European firms. (ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on takeover returns in the UK and a negative one in Continental Europe. (iii) Weak investor protection and low disclosure in Continental Europe allow bidding firms to adopt takeover strategies enabling them to act opportunistically towards the target's incumbent shareholders.",
author = "M. Martynova and L.D.R. Renneboog",
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The performance of the European market for corporate control : Evidence from the 5th takeover wave. / Martynova, M.; Renneboog, L.D.R.

In: European Financial Management, Vol. 17, No. 2, 2011, p. 208-260.

Research output: Contribution to journalArticleScientificpeer-review

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