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.