A comparative analysis of the wealth effects to target and bidding company shareholders from domestic and cross-border acquisitions into the United Kingdom (1986-1991)

Abstract

This thesis contains an analysis of the impact on shareholder wealth of domestic and cross-border takeover bids for UK listed companies. The study covers the calendar years from 1986 to 1991 inclusive. For the cross-border acquisitions, data is available for an analysis of 143 targets, 71 bidders, and 55 matched pairs of targets and bidders. For domestic acquisitions, data was available for 568 targets, 414 bidders and 356 pairs of targets and bidders. Three different event study methodologies are applied; the capital asset pricing model, the market model, and the index model. UK target companies gained significantly from both domestic and cross-border takeover bids. Over the period from eight months prior, to one month after, the month of the bid announcement (t-8, t+1), cumulative abnormal returns exceeded +20.2% in cross-border and +16.6% in domestic acquisitions. Both domestic and overseas bidders underperformed during the five month period following the bid announcement. However, over the whole analysis period (t-8, t+5), UK bidders performed significantly better than overseas bidders. Analysis of joint abnormal returns to pairs of targets and bidders reveals that both cross-border and domestic acquisitions in the UK during the 1986-1991 period created significant shareholder wealth. However, the gains to target shareholders exceed the total gain, thus resulting in a transfer of wealth from bidders to targets.