Department of Business Finance ACF project Finance & Intl.

Business

Author: 402046 Group members: 283888 410189 283900 283894

Do European acquisitions create shareholder wealth?

An event-study of European companies from 2000-2011

Aarhus School of Business and Social Sciences May 2011

1. Introduction .................................................................................................................................... 3 1.1. Problem statement ..................................................................................................................... 4 1.2 Motivation for the study ............................................................................................................. 4 1.3 Executive summary .................................................................................................................... 5 2. Literature review............................................................................................................................ 5 2.1 Review of the relevant theory .................................................................................................... 5 2.2 Review of relevant empirical evidence ...................................................................................... 6 3. Hypothesis ....................................................................................................................................... 7 4. Methodology ................................................................................................................................... 8 5. Data ............................................................................................................................................... 10 5.1 Data selection in Zephyr .......................................................................................................... 10 5.2 Datastream ............................................................................................................................... 11 5.3 Descriptive statistics ................................................................................................................ 12 6. Empirical evidence ....................................................................................................................... 14 6.1 Test and results......................................................................................................................... 14 6.2 Regression ................................................................................................................................ 15 7. Conclusion..................................................................................................................................... 17 8. Bibliography ................................................................................................................................. 18 9. Appendix ....................................................................................................................................... 20

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1. Introduction
The purpose of this paper is to study the impact on shareholder wealth of European acquisitions. Several M&A papers have stressed the fact that M&As happen in waves and within these waves, in clusters by industry (Andrade, Mitchell, & Stafford, 2001; Goergen & Renneboog, 2004). Since the late 19th century, the incentives for commencing an acquisition have been several, such as: gaining market power, while the market concentration ratio increases taking advantage of opportunities for diversification obtaining efficiency-related incentives that often could result in economies of scale (Andrade, Mitchell, & Stafford, 2001), and focusing on obtaining a competitive advantage

So, the overall incentives to acquire a target may be the anticipation of certain synergy effects, economic benefits and maintain competitiveness. As stated by (Martynova & Renneboog, 2006) European firms have participated noticeably in the M&A activity, at a level worthy of its US and UK counterparts. Martynova and Renneboog further argue, that the explanations for this increasing activity may be the introduction of the Euro, the globalization process, technological innovation, deregulation and privatization, along with the financial markets boom encouraging European companies to be a part of the M&As during the 1990s. Deregulation is by many believed to be the main driver of the 1990s waves (Andrade et al., 2001). Lastly, the existing empirical research, regarding wealth for the acquirer and target shareholders, is mainly based on US data. Therefore, the aim of this paper is to investigate the impact on shareholder wealth when dealing with European acquisitions from year 2000 until primo 2011.

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1.1. Problem Statement

In relation to the above-mentioned introduction, the aim of this paper is to test whether an acquisition, in general, generates an abnormal return and thereby more wealth to the shareholders. The quantitative event study approach is used to investigate this further. Moreover, the paper will investigate the effects of the two different acquisition strategies, being domestic and cross-border acquisitions, in and between European countries during the time period 2000-2011. Specifically, the aim is to investigate whether the acquisition will create a significant change in wealth for both the acquiring and target companys shareholders on the day of the announcement. Based on this framework and existing research the following research-question has been conducted: Will the announcement of an acquisition create additional wealth for the involved companies, on a short-term basis?

This leads to the following sub-questions: Will there be significant differences between the abnormal return of domestic acquisitions as opposed to cross-border acquisitions? Will there be significant differences of the abnormal return from the perspective of the acquirer compared to the target?

1.2 Motivation for the Study

The empirical research on acquisitions in Europe, is limited compared to its US and UK counterparts. As the M&A activity has increased in the recent decades, it seems important to investigate this increasing activity further. Moreover, it is interesting to investigate whether there is consistency between some fundamental financial theories and how the real world, i.e. the European financial markets, reacts to new information. Considering the situation for US based company DuPonts shareholders, during the companys acquisition a majority share of the Danisco company, it is interesting to further analyze whether it is beneficial to be a target shareholder and less beneficial to be an acquirer shareholder ("DuPonts Danisco Deal Not a Threat to Novozymes, Analysts Say" ).

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1.3 Executive Summary

The paper contains an event study investigating whether there is an abnormal return for the acquiring company and or target company on the announcement day of the acquisition. The following hypothesis has been put forward for the acquirer shareholders: Hypothesis 1: the event has no impact on the abnormal return. Additionally, this hypothesis is divided into two different acquisition strategies, resulting in the following: Hypothesis 2: the event has no impact on the abnormal return for the cross-border acquiring firms shareholders. Hypothesis 3: the event has no impact on the abnormal return for the domestic acquiring firms shareholders. Lastly, the target shareholder is considered by: Hypothesis 4: the event has no impact on the abnormal return for the target shareholders. To conclude the result of this study it was found, that it is significantly better to be a target shareholder than being acquirer shareholder.

2. Literature Review
In the following only the relevant theory and empirical findings regarding the event study on acquisitions is considered.

2.1 Review of the Relevant Theory

First, the efficient market hypothesis, EMH, published by E. F. Fama, builds on two key assumptions of a market. 1) In an efficient market at any given time, the actual price of a share is a reliable estimate, and 2) the market will react instantly on new information (Fama, 1965). Hence, investors should not be able to earn above the normal return in the market since all information should always be imbedded in the share price, instantly after announcement. Therefore, it is not

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possible to earn an abnormal profit from information already known by the market (Fama, 1970)(von Gersdorff & Bacon, 2009). A more profound understanding of efficient market hypothesis is beyond the scope of this paper. However, the narrow inclusion of the efficient markets theory is relevant to gain an understanding, or at least, a theoretical understanding of how financial markets may act. In general, the empirical research on M&As has revealed trends and characteristics trying to explain the motives of these activities and as numerous event studies have found, it effects the shareholder wealth. Additionally, it might also be crucial to stress the fact, that prices may adjust to firmspecific information, which an acquisition in fact is (Fama, 1991). Some incentives for the M&A activities are to some extent clarified in the introduction. Additionally an empirical finding claim that M&As happen in waves and within these waves M&As cluster by industry (Andrade et al., 2001). The relevant empirical literature draws a picture of what characterizes each wave, while defining the main motive driving the M&A activity. The M&As waves have both been driven by economic, regulatory, and recently more technological shocks drive industry merger waves (Harford, 2005).

2.2 Review of Relevant Empirical Evidence

Much of the existing literature is based on US data, which is an argument to investigate why it is interesting to test European data. As mentioned in the introduction, the significant changes within the European Union have stimulated a restructuring process for European companies. Moreover, the higher activity level in 1998-2000 was found by (Campa, J., M., & Hernando, 2004) mainly, to be caused by domestic factors. Campa and Hernando investigated the value creation from the announcement of M&As for acquirer and target shareholders. They found that the target shareholders receive, on average, a positive and significant cumulative abnormal return from the announcement. On the contrary, the abnormal return of the acquiring firms shareholders is not significantly different from zero, which is consistent with the findings of (Bae & Park, 1994). Additionally, in a recent US study by (Moeller, Sschlingemann, & Stulz, 2005) it was actually found, that acquirer shareholders lost a substantial amount per dollar spent on acquisition in the period 1998-2001.

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The findings of Campa and Hernando are somewhat consistent with (Goergen & Renneboog, 2004 and (Martynova & Renneboog, 2006). However, in both papers the effects of announcement are found to be statistically significant for both the target and the acquirer shareholders. It should be noted that the acquirer shareholders return is quite modest. Furthermore, Georgen & Renneboog distinguish between hostile and friendly takeovers, where the first shows a negative effect for the acquiring firms shareholders and a higher effect of target shareholders. Additionally, a final finding of the paper is that domestic acquisitions generate higher wealth effects, than cross-border acquisitions, which is supported by (Kang, 1993). This, however, is inconsistent with the findings of (Lowinski, Schiereck, & Thomas, 2004) who find no significant difference in wealth between the two acquisition strategies. To sum up, the evidence presented is obviously quite contradicting. As (MacKinlay, 1997) states, the general picture is that, the abnormal returns of the target are positive, whereas the acquirer are close to zero.

3. Hypothesis
The hypothesis finds its inspiration from the stated research questions from section 1.1. The goal of the stated hypotheses is to investigate the acquirer versus the target shareholder wealth. Further, it is interesting to examine whether one of the two acquisition strategies is significantly beneficial compared to the other. Based on the existing literature, there is an anticipation of no abnormal return for the acquiring company (MacKinlay, 1997)(Goergen & Renneboog, 2004), hence the null hypothesis: Hypothesis 1: the event has no impact on the abnormal return. It is interesting to investigate whether the two different acquisitions strategies generate any significant abnormal return (Lowinski et al., 2004) (Kang, 1993). Therefore, the following hypothesis is put forward for cross-border and domestic acquisitions respectively:

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Hypothesis 2: the event has no impact on the abnormal return for the cross-border acquiring firms shareholders. Hypothesis 3: the event has no impact on the abnormal return for the domestic acquiring firms shareholders. And finally, the hypothesis for the target shareholders is put forward. This is regardless of the acquisition strategy, but motivated to a strong degree by (Campa, J., M., & Hernando, 2004) (Martynova & Renneboog, 2006): Hypothesis 4: the event has no impact on the abnormal return for the target shareholders.

4. Methodology
In order to test the aforementioned hypothesis, an event study approach is used. The following description of the applied methodology is inspired by (MacKinlay, 1997). As mentioned in section 2, the usefulness of such a quantitative study comes from the fact, that given rationality in the market, the effects of an event will be reflected instantly in the share price and the idea is to capture this possible change. First, we define the event of interest to be acquisitions within the European Union and the data collected transpires from year 2000 until primo march 2011. Each acquisition announcement has an estimation period of 200 (trading days) before the event, and an event window of three days. The day prior to the event, the event day, and the post event is noted as t-1, t0 and t+1 respectively. The day prior is included as the market may acquire information regarding the announcement beforehand. The day post the event is included since it is then possible to capture the change in the share prices. By making the event window as small as possible we may eliminate most variance, but on the other hand we may not be able to measure the effect completely. It is always a balance between the two. The selection of a relatively short event window is consistent with the EMH, thereby trying to capture the instant response to new information.

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The time line for the event study is illustrated in the figure below: Figure 4.1: Time line

Source: interpretation 9/4/2011

The impact of the event requires a measure of the impact on abnormal profit. The calculation of this is beyond the scope of this paper, but it defined, in short, as the surplus of the normal return in the chosen event window, which is presented in Appendix D on the CD. The approach to determine the normal performance is in full alignment with the MacKinlay papers suggestion of applying the market model. In our study we have used the S&P Euro index, which will be elaborated on in the data section. In order to test for abnormal performance on event days we make use of both parametric tests and non-parametric tests. The parametric tests are restricted by several assumptions, whereas the nonparametric test is not restricted by such assumptions. Both types of tests are included to ensure a degree of robustness of the conclusions, as stated by (MacKinlay, 1997). The selected tests are in alignment with (Bartholdy, Olson, & Peare, 2007) and lecture 3 in ACF class. Table 4.1: statistical tests Parametric tests T1 Cross-sectional dependence T2 Cross-sectional independence T3 Standardized abnormal return T4 Adjusted standardized abnormal return

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T5 Rank test T6 Sign test For further details about all the test statistics look in Appendix C and D on the CD. After conducting the tests it is beneficial to present the results and compare this to the relevant literature and existing empirical findings. This will hopefully lead to some insight in understanding the effects of M&As. Finally, a regression analysis is presented to shed some additional light on the explanation of CAR.

5. Data
An overview of the data process is presented below: Figure 5.1 data process Zephyr DataStream SAS Excel

5.1 Data Selection in Zephyr

In order to increase the validity of the results presented in the paper, the following describes how the final sample was constructed in detail. The initial selection criteria are presented in Appendix 4. The initial screening resulted in 70,030 deals, which obviously should be decreased even further. Therefore the screening process was subject to change by implementing additional selection criteria. Our second screening added that the acquirer should be quoted. Furthermore, the acquirer and target assets should amount to a minimum sum of 100m and the percentage of stake acquired should amount to minimum 75% of the target companys shares.

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Table 5.1 Zephyr search criteria. Deal type World Regions Time period Quoted companies Acquiror financials (million EUR( Percentage of Stake Current deal status Target financials (million EUR) Acquisition Acquiror European Union (27) Target European Union (27) 2001 Until current date Quoted acquiror a. Total assets, min = 100 Acquired Stake Min = 75 Completed a. Total assets, min = 100

After this process acquirers and targets with no ISIN numbers were removed as well as inter-firm deals. Accordingly, the sample size dropped from 956 to 70. Moreover we were alleged to include data from the fiscal year 2011, but it was not possible to retrieve any deals, which satisfied our selection criteria. It is important to address some of the above listed factors a bit further. Namely, the current deal status, since it is crucial for the rumor and announcement date to be the same. This is due to the fact, that if the market is aware of the new information, i.e. a month before, it will affect the share prices before the actual announcement day. Thus, the three day event window is not able to capture the effect completely. Last, a noteworthy downside of Zephyr is the need to go through the output one-by-one, since it does not fulfill the listed criteria. As mentioned, our screening resulted in data of 956, but some data did not fulfill our requirements. For instance, we only assigned Zephyr to show data from 2001 and onwards, but ended up with data from 2000 as well as US-Euro deals.

5.2 DataStream
The key from transferring data from Zephyr to DataStream is the unique ISIN number, and in the following the transformation process is described in more detail. We have used the Standard & Poors Euro Index, S&P Euro, as we consider this index to be representative for our EU27-chosen countries. This index is assumed to be similarly applicable as

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the Morgan Stanley Euro Index, MSEI, as it consists of 182 large European-traded stocks. By relating the return of any given security to the return of the market portfolio, i.e. S&P Euro, we are making use of the market model to measure the normal performance, as mentioned in section 4. Some elements of the DataStream process are worth addressing even further. First, we have chosen daily returns since it contributes to a precise and quick response of the price of a security. As stated, this supports the second of the two key assumptions of the EMH (Fama, 1991). Furthermore, we have used log return, as one can see the relative changes in the prices and compare it to series with different base values. This ensures that the comparability between variables is reliable.1 Second, when considering the estimation period it is necessary to go approximately 365 days back, so we are able to capture about 200 trading days (observations). Actually, we ended up with 204 observations since we needed 203 + 1, where the one extra is necessary for the return transformation. The actual observation amounted to 203. Furthermore, our dataset dropped from 70 to 67, since DataStream was unable to extract some necessary data. The sample is however assumed to be large enough for further investigation even though a number of stocks signaled signs of thin trading issues, which we assumed to be negligible. So, the final acquirer sample of 67 is split up into2: Cross-border deals (26) Domestic deals (41)

And we only have return data from 16 target companies, which makes it a very small sample. This results in four samples for which the four hypotheses have been fabricated. The four sample are then implemented to SAS and Excel sheets for further analysis, which is illustrated in figure x.

5.3 Descriptive Statistics

In the end our total sample consists of 67 acquisitions where the majority are domestic deals, which is amplified in Appendix 1. Our sample consists of 45 deals with a full acquisition (67%) where the lowest acquired deal sums up to approximately 75% (33%). However, in our test all deals

1 2

However, this proved not to be necessary, as we have used daily data. It is assumed that all deals fulfill the criteria of being a 100% acquisition

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assumedly qualifies as full acquisitions. One must refer to Appendix 1 to see the distribution of domestic versus cross-border deals. Furthermore, our target sample consists of 16 deals, since it was only possible to obtain prices for this limited number of deals. Even though the target sample size is too small to generalize, we included it to confirm what numerous empirical researches states. It seems reasonable to assume that since we are applying daily data, returns are comparable and normally distributed. Obviously the results of the CAR can both be positive and negative, which is why we used a two-sided test. The tests are dealt with in Appendix D on the CD. Considering the descriptive statistics of our target sample:

Table 5.2: descriptive statistics for target shareholders Abnormal returnt=i -1 0 1 CARt=0 SUM 1,946 0,476 0,240 2,662 Mean 0,122 0,030 0,015 0,166 Skewness 1,677 3,600 3,635 0,986 Std. Deviation 0,167 0,076 0,064 0,171

Source: own interpretation 4/5/2011

Table 1 illustrates that it, on average, is advantageous to be a target shareholder. Furthermore, the positive skewness indicates a distribution with an asymmetric tail extending towards positive values. This is also amplified in Appendix 1 in figure 3. Further test on the assumptions of the data is beyond the scope of this paper, as we assume the data to be normally distributed and comparable. Descriptive statistics for the other samples are presented in Appendix 1.

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6. Empirical Evidence
In this section first the six parametric and non-parametric test results are presented followed by a regression analysis.

6.1 Test and Results

In general, the aim is to test whether the observed differs statistically from zero. In testing for this we apply six test statistics, as mentioned in section 4. The test results are presented below: Table 6.1 presentation of tests CAR T1 Acquirer(67) Crossborder(26)3 Domestic(41) Target(16)
0,546 2,662 -2,240* 12,707* 1,929 15,351* 0,171 15,389* 0,295 3,332* 0,724 3,388* 0,025 2,032 0,704 0,158 -2,367* -0,933

T2
1,983* 0,675

T3
1,915 0,676

T4
0,233 0,131

T5
0,836 0,336

T6
0,198 0,618

Notes: The figures marked by * are statistically significant from zero. The significant figures have a p-value 0,05. Two-sided test since we are testing for both positive and negative returns. Source: own interpretation 4/5/2011 and based on Appendix D on CD.

Regarding the acquirer there is inconsistency in the results presented (T1-T2 differs from T3-T6). When facing inconsistency between the parametric and the non-parametric it may indicate that the assumptions of the parametric tests are not fulfilled. Therefore, it is favorable to rely on the nonparametric test result, thus fail to reject the null hypothesis of no abnormal return for acquiring firm shareholders. Additionally, it may be relevant to comment on the fact, that if we changed the level of significance to 1% the conclusion of every test would be the same, namely fail to reject the null . Accordingly the conclusion is uncertain due to this matter. Considering the two different acquisition strategies, cross-border and domestic, it is a somewhat uniform conclusion. Moreover, when facing the result of the target shareholders it presents a different story. It seems very advantageous to be a shareholder of a target firm as we reject the null hypothesis of no abnormal return. This states that the abnormal return it statistically significant from zero, hence there is an abnormal return for the target shareholders.

Both cross-border and target are subject to a t-distribution since the n<30.

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Our findings support some of the existing empirical work regarding no significant return to acquiring firm shareholders, and are aligned with (Bae & Park, 1994; Campa, J., M., & Hernando, 2004) as covered in the literature review in section 2. The motives for commencing an acquisition are somewhat obvious, but the reasons to acquirers ending as the losers are blurry. From a market perspective, one reason may be, that the deal will never yield the company-anticipated synergy effects. However, it has been found by (Martynova & Renneboog, 2006) that acquiring firms using domestic acquisition are more favorable compared to its cross-border counterpart. This is a conclusion our test does not fully support, as none of the strategies yield an abnormal return, significantly different from zero, which is supported by (Lowinski et al., 2004). One incentive for the de-regulation, which has flourished across the European Union, may be to remove the upside of following a cross-border strategy compared to doing domestic acquisitions. Arguments as to why it is not lucrative to follow a cross-border strategy, might be due to the fact that legal, economic and regulatory obstacles still matter heavily (Campa, J., M., & Hernando, 2004). Finally, the findings of target shareholders do support the reviewed literature and further supports a lot of the existing literature on target shareholder wealth regarding acquisitions (Goergen & Renneboog, 2004; MacKinlay, 1997). One obvious reason for target shareholders to experience an abnormal return during the announcement window is the fact that there is paid an excess price in order to buy a given share. Moreover, the acquisition of a target may signal to the market, that the target is a strong company with growth potential, which makes their shares attractive to buy.

6.2 Regression
The purpose of including a regression is analyzing the relationship among the variables. The regression analysis should be seen irrespective of the latter section. In order to be able to conclude anything from the regression model, it is assumed that the underlying assumptions are fulfilled. The estimated model is presented below: CARt=-1;+1 = acquirer x 1 + cross-border x 2 + error term

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The regression is run in the statistical program, SAS, where the output is presented in Appendix 2. The model is estimated from the CAR data on acquirer and target (=83) at time t-1;+1. Additionally, both the acquirer and cross-border parameters are dummy variables. The linear relationship in the data is illustrated in Appendix 2, however, this should be seen in connection with the adj. R2 described below. We want to look at the relationship between shareholder wealth for our four samples and CAR. Accordingly we want to predict CAR from acquirer and cross-border variables. Table 6.2. Results of the regression analysis Variable Intercept Acquirer Cross-border Parameter estimates P-value 0,163 -0,158 0,013 0,01 0,01 0,55

Source: own interpretation 3/5/2011

The model with CARt-1;t+1 as dependent variable has one statistically significant variable and the adj. R2 equals 28,87%. Interpretation of the model tells us that being an acquiring firm shareholder we obtain a smaller return compared to its target counterpart that receives a higher return. We see that the relationship between CAR and acquiror is negative (-0,158). This relationship must be concluded to be statically significant. Thus, there is a statistically significant negative linear relationship between CAR and acquirer. Turning to the target, which is found in the intercept parameter we see a positive relationship which also is statistically significant. Hence, there is a statistically significant positive linear relationship between CAR and target. Looking at the relationship between CAR and the cross-border, we actually find a positive relationship (0,013). However, this is not statistically significant (SAS interpretation of the REG Procedure).

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7. Conclusion
An event study approach was used in order to test for acquisitions with the European Union from the period 2000-2011. It was found, that acquisitions do not generate any abnormal return for the shareholders of the acquiring firm regardless of being domestic or cross-border. However, it was found, that it is indeed beneficial to be a target shareholder, although it was a small sample. The sample consisted of 67 deals with four sub samples, each with 203 observations. It should be noted, that the tests, both parametric and non-parametric, did not perform uniform results at the selected significance level, except for the cross-border sample. Furthermore, a regression has been put forward trying to explain the relationship between CAR and acquirer (including cross-border and domestic) along with the target. It was found, that the acquirer contributed a significantly negative CAR, whereas the target contributed a significantly positive CAR. Finally, our results are consistent with most empirical findings, and in that manner validate a range of published findings regarding the European M&A topic.

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8. Bibliography
Andrade, G., Mitchell, M., & Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic Perspectives, 15(2), 103-120. Bae, S., C., & Park, J., R. (1994). Acquisition of failing firms and stockholder returns. Journal of Accounting, Auditing & Finance, 9(3), 511-529. Bartholdy, J., Olson, D., & Peare, P. (2007). Conducting event studies on a small stock exchange. European Journal of Finance, 13(3), 227-252. Campa, J., M., & Hernando, I. (2004). Shareholder value creation in european M&As. European Financial Management, 10(1), 47-81. Fama, E., F. (1970). Efficient capital markets - review of theory and empirical work. Journal of Finance, 25(2), 383-423. Fama, E., F. (1991). Efficient capital-markets 2. Journal of Finance, 46(5), 1575-1617. Goergen, M., & Renneboog, L. (2004). Shareholder wealth effects of european domestic and crossborder takeover bids. European Financial Management, 10(1), 9-45. Harford, J. (2005). What drives merger waves? Journal of Financial Economics, 77(3), 529-560. Kang, J. (1993). The international market for corporate control : Mergers and acquisitions of U.S. firms by japanese firms. Journal of Financial Economics, 34(3), 345-371.

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Lowinski, F., Schiereck, D., & Thomas, T. W. (2004). The effect of cross-border acquisitions on shareholder wealth -- evidence from switzerland. Review of Quantitative Finance & Accounting, 22(4), 315-330. MacKinlay, A., C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13-39. Martynova, M., & Renneboog, L. (2006). Mergers and acquisitions in europe.Working Paper No. 114/2006 Moeller, S., B., Sschlingemann, F., P., & Stulz, R. M. (2005). Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. Journal of Finance, 60(2), 757-782. von Gersdorff, N., & Bacon, F. (2009). U.S. mergers and acquisitions: A test of market efficiency. Journal of Finance & Accountancy, 1, 1-8.

Internet sources: http://www.bloomberg.com/news/2011-01-11/dupont-s-danisco-acquisition-not-a-threat-tonovozymes-analysts-say.html http://www.ats.ucla.edu/stat/sas/whatstat/whatstat.htm

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9. Appendix
1. Descriptive statistics diagrams 2. Regression analysis 3. List of companies used in the analysis including the event dates. 4. Search criteria used in Zephyr, Print-Screen 5. Documentation of literature search Lars

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Appendix 1 Descriptive statistics

Two different strategies contribution to the EU acquisition activity from 2001-11

Cross-border Domestic

39% 61%

Figure 1
14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Domestic CB Acquirer

Figure 2

The blue bar illustrates the total number of deals recorded in that specific period. Accordingly, the two other bars reflect how much they each have contributed for that specific year.

Target return
60% 50% 40% 30% 20% 10% 0% -0,02 - 0 0,01-0,2 0,21-0,3 0,31-0,4 0,41-0,55 Frequency

Figure 3

The histogram illustrates the positive skewness within sample. This may emphasize that, on average, it is advantageous to be a target shareholder.

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Acquirer - 67 AR
Sum 0,431 0,262 0,010 CAR 0,703 Mean 0,006 0,004 0,0001 0,011 Skewness 2,207 0,193 0,479 1,798 Std. Dev. 0,047 0,034 0,018 0,065

Cross-border - 26 AR
Sum -0,039 0,234 -0,037 CAR 0,158 Max Min Mean -0,001 0,009 -0,001 0,006 0,137 -0,063 Skewne ss 0,007 2,335 0,603 1,623 Std. Dev. 0,034 0,029 0,016 0,047

Domestic - 41 AR
Sum 0,470 0,028 0,048 CAR 0,546 Max Min Mean 0,011 0,001 0,001 Skewness 2,305 -0,303 0,393 0,013 1,677 0,311 0,128 Std. Dev. 0,054 0,038 0,020

0,075

As our sample is consistent with (Martynova & Renneboog, 2006) by a majority of the deals being domestic, this also influences the sample greatly. When considering the mean of cross-border and domestic there is an anticipation of a higher wealth in the cross-border acquisition strategy (Kang, 1993). However, this does not seem to support our study, even though this is basic statistics, as the mean of DomesticCAR outweighs the mean of Cross-borderCAR. A downside of the mean is that it is

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vulnerable to extremely high and low numbers, which could affect the mean greatly, since the two sample sizes are relatively small and not the same size.

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Appendix 2 Regression analysis Figure 1

Figure 2 illustrating the CARs where the right-hand side is very much influenced by the abnormal returns from the target sample.

CAR
0,6 0,5 0,4 0,3 0,2 0,1 0 -0,1 -0,2 0 20 40 60 80 CAR Liner (CAR)

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Appendix 3 List of companies

Acquiror name Wiener Stdtische Allgemeine Versicherungs AG Fortis NV Financiere d'Obourg SA/NV ABB Ltd Bilfinger Berger AG Bilfinger Berger AG Continental AG Siemens AG Albis Leasing AG Stada Arzneimittel AG Siemens AG Nordvestbank A/S Vestas Wind Systems A/S Himmerlandsgade 74, Aars A/S Vestjysk Bank A/S Max Bank A/S Acesa Infraestructuras SA Grupo Inmocaral SA Construcciones Reyal SA Metso Oyj Elisa Oyj Tecnomen Holding Oyj Sponda Oyj Metso Oyj Faurecia SA Lafarge SA Socit Gnrale Schneider Electric SA Technip SA Lafarge SA Compagnie des Alpes SA Brime Technologies SA Icade SA Sagem SA Acquiror country code AT Target name Zastrakhovatelno Aktsionerno Druzhestvo Bulstrad Viena Inshurans Grup AD ASR Verzekeringsgroep NV Financiere de Tubize SA Groupe Entrelec Rheinhold & Mahla AG Abigroup Ltd Phoenix AG Broadcastle plc Autobank AG Hemofarm Koncern AD Aktiengesellschaft Khnle Kopp & Kausch Vestjysk Bank A/S Neg Micon A/S Sparekassen Himmerland A/S (old) Ringkjbing Bank A/S Sklskr Bank urea Concesiones de Infrastructuras SA Inmobiliaria Colonial SA (old) Inmobiliaria Urbis SA Svedala Industri AB Soon Communications Oyj Tecnomen Oyj Castrum Oy Tamfelt Oyj Abp Sai Automotive AG Blue Circle Industries plc SKB Banka dd Legrand SA (old) Isis Cementia Holding AG Grvin et Compagnie SA Assystem SA Socit Foncire des Pimonts SA Societe Nationale d'Etude et de Construction de Moteurs d'Aviation SA Sogeparc SA Target country code BG Date announced 23-12-2008 Target ISIN BG1100015046 Acquiror ISIN AT0000908504

BE BE CH DE DE DE DE DE DE DE DK DK DK DK DK ES ES ES FI FI FI FI FI FR FR FR FR FR FR FR FR FR FR

NL BE FR DE AU DE GB AT RS DE DK DK DK DK DK ES ES ES SE FI FI FI FI DE GB SI FR FR CH FR FR FR FR

9-10-2000 23-03-2005 9-04-2001 6-06-2002 23-10-2003 29-03-2004 26-07-2005 15-12-2005 14-07-2006 20-07-2006 28-10-2002 12-12-2003 10-10-2006 29-09-2008 27-05-2010 20-05-2002 7-06-2006 28-07-2006 21-06-2000 21-03-2001 5-04-2001 31-12-2002 5-11-2009 25-10-2000 8-01-2001 20-01-2001 7-06-2001 26-07-2001 15-05-2002 23-05-2002 9-09-2003 13-10-2004 29-10-2004

NL0000301380 BE0003768828 FR0000035776 DE0007016701 AU000000ABG8 DE0006031008 GB0000042407 AT0000A0K1J1 CSHMFRE75032 DE0005027700 DK0010304500 DK0010253681 DK0060050045 DK0010300193 DK0010309491 ES0111847036 ES0153440419 ES0154800215 SE0000108169 FI0009006787 FI0009009146 FI0009002273 FI0009000939 DE0005009005 GB0003863023 SI0021103013 FR0000120610 FR0000120008 CH0001578472 FR0004251098 FR0000053589 FR0000073686 FR0005328747

BE0003801181 BE0003823409 CH0012221716 DE0005909006 DE0005909006 DE0005439004 DE0007236101 DE0006569403 DE0007251803 DE0007236101 DK0010304500 DK0010268606 DK0060050045 DK0010304500 DK0010305903 ES0111845014 ES0139140018 ES0122761010 FI0009007835 FI0009007884 FI0009010227 FI0009006829 FI0009007835 FR0000121147 FR0000120537 FR0000130809 FR0000121972 FR0000131708 FR0000120537 FR0000053324 FR0000074148 FR0000035081 FR0000073272

Vinci SA

FR

FR

12-12-2001

FR0000035958

FR0000125486

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Socit de la Tour Eiffel SA Taylor Woodrow plc Hilton Group plc Balfour Beatty plc Davis Service Group plc, The Hammerson plc Tesco plc ISIS Asset Management plc Grainger Trust plc AstraZeneca plc Balfour Beatty plc Warner Estate Holdings plc ShakespeareCo plc Coppereagle plc DS Smith plc Hellenic Petroleum SA Sidenor SA Orszagos Takarekpenztar es Kereskedelmi Bank Rt Orszagos Takarekpenztar es Kereskedelmi Bank Rt CRH plc Eni SpA Risanamento SpA Banche Popolari Unite SCRL Snam Rete Gas SpA Koninklijke Vopak NV Koninklijke BAM NBM NV Asseco Poland SA GornoMetallurgicheskaya Kompaniya Norilskii Nikel OAO Invik & Co AB TeliaSonera AB Haldex AB Wise Group AB Fastighets AB Balder Svenska Handelsbanken AB Svenska Handelsbanken AB
* Intially

FR GB GB GB GB GB GB GB GB GB GB GB GB GB GB GR GR HU

Locafimo SAS Bryant Group plc Scandic Hotels AB ABB Ltd's rail electrification business Sophus Berendsen A/S Grantchester Holdings plc T&S Stores plc Foreign & Colonial Investment Trust plc City North Group plc Cambridge Antibody Technology Group Birse Group plc JS Real Estate plc MyTravel Group plc First Choice Holidays plc Otor SA Petrola Hellas SA Corinth Pipeworks SA Investicna a Rozvojova Banka as OTP Banka Srbija AD Gtaz Romang Holding SA Lasmo plc Bonaparte SpA Banca Lombarda e Piemontese SpA Italgas - Societa Italiana per il Gas SpA Ellis & Everard plc HBG Hollandsche Beton Groep NV Prokom Software SA Talvivaaran Kaivososakeyhti Oy Industrifrvaltnings AB Kinnevik Vollvik Gruppen AS Concentric plc Dagon AB Din Bostad Sverige AB Midtbank A/S Lokalbanken i Nordsjlland A/S

FR GB SE CH DK GB GB GB GB GB GB GB GB GB FR GR GR SK

25-11-2005 22-01-2001 23-04-2001 21-12-2001 22-03-2002 9-09-2002 30-10-2002 2-07-2004 22-03-2005 15-05-2006 26-06-2006 26-01-2007 12-02-2007 19-03-2007 7-07-2010 30-05-2003 14-04-2009 12-03-2001

FR0000037988 GB0001494086 SE0000351157 CH0012221716 DK0010238534 GB0031461832 GB0008699778 GB0003466074 GB0002827672 GB0001662252 GB0001005684 GB0008178138 GB00B06BLB41 GB0006648827 FR0000064438 GRS416373009 GRS300103009 SK1110001452

FR0000036816 GB0008782301 GB00B0ZSH635 GB0000961622 GB00B0F99717 GB0004065016 GB0008847096 GB0004658141 GB00B04V1276 GB0009895292 GB0000961622 GB0009406561 GB00B1VYCH82 GB00B1Z7RQ77 GB0008220112 GRS298343005 GRS283003002 HU0000061726

HU

RS

10-10-2007

RSKULBE40207

HU0000061726

IE IT IT IT IT NL NL PL RU

CH GB IT IT IT GB NL PL FI

5-03-2007 21-12-2000 19-07-2002 14-11-2006 12-02-2009 10-11-2000 11-06-2002 29-09-2007 20-11-2006

CH0015418087 GB0005316301 IT0003184188 IT0000062197 IT0003049217 GB0003115424 NL0000359024 PLPROKM00013 FI0009014716

IE0001827041 IT0003132476 IT0001402269 IT0003487029 IT0003153415 NL0009432491 NL0000337319 PLSOFTB00016 RU0007288411

SE SE SE SE SE SE SE

SE NO GB SE SE DK DK

16-02-2004 6-07-2005 22-02-2008 23-02-2007 26-06-2009 11-04-2001 15-09-2008

SE0000104416 NO0010058696 GB0002153095 SE0000646606 SE0000614695 DK0010001528 DK0010312446

SE0000164626 SE0000667925 SE0000105199 SE0000646606 SE0000455057 SE0000193120 SE0000193120

we started out with a sample of 70, but ended up with 67 after extracting return data

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Appendix 4 Print-screen of search criteria Initial search:

The deal type focus on acquisitions and target, the geographical area of interest is subject to the Europeans union with data from transpiring from primo 2000 until end of first quarter of 2011. The acquired stake in the company should be more than half in order to gain some kind of control and lastly, the deal should be completed: Final search:

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Appendix 5 Literature search I have used some of the relevant academic papers from the ACF course to start my literature search. Thereby, I have located possible sources in the reference section of the academic papers. It quickly came to my attention the specific authors and search words, were cited and noted in almost every paper, so I concluded to take that approach. Primarily, Ive used the Business Source Complete database, BSP, to search for material. Key search words include: event study, acquisition, European Union, abnormal return, Fama, domestic and cross-border takeover bids, merger waves. My initial search started in an author-based database, where it was relatively easy to note related headlines where after it was possible to read the abstract.

Moreover, I used the BSP database where it quickly came to my attention, that it was not satisfactory to use one single search word, but one must specify the search to be able to grasp the amount of data presented:

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Lastly, in the search for useful literature, as mentioned, I investigated several references from papers concerning the topic, and thereby got an idea of what was relevant. This approach is illustrated by locating Fama, E. F. in numerous papers and searching in an author-based database:

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