Shareholder Wealth and Merger

Department of Business Finance Bsc. Business Administration & International Management

Author: Casper Flugt

Advisor: Ph.D. Jan Bartholdy Associate Professor

Shareholder wealth effects of mergers and acquisitions: An empirical investigation of short-term performance in the European market

May 2009 Aarhus School of Business, University of Aarhus, Denmark

Abstract This thesis looks at the value generated to target and bidder shareholders by the announcement of mergers and acquisitions (M&A) in the European Union over the period 2000-2008 in a sample of 288 deals. Cumulative abnormal shareholder returns, the difference between the expected return on a stock and the actual return that comes from the M&A announcement, reflect the expected value resulting from synergies. Target firms receive on average a statistically significant cumulative abnormal return of 14.92% in a five-day window around the announcement day. Bidders’ cumulative abnormal returns are on average zero. The evidence is consistent with previous empirical findings in the field. When distinguishing in terms of means of payment, the findings show that share price reaction is sensitive to means of payment for both targets and bidders, but there is not enough statistical evidence to document a significant difference between the types of payment. Likewise, it is not possible to find a significant difference between domestic and crossborder M&A announcements suggesting that the market neither compensate nor penalize for the obstacles that the target and bidder might face in cross-border M&A. The relatedness between the target and the bidder based on their SIC-codes is also examined, but no difference is detected Finally, the study finds that UK targets on average receive larger cumulative abnormal return than their Continental European counterparts which is consistent with previous findings and theories of corporate governance regulations and shareholder protection.

Keywords: Mergers and...