Cross-border Mergers and Acquisitions

Similar documents
Trade, Investment and Competition in International Banking

Marketing in the Emerging Markets of Latin America

Public Credit Rating Agencies

This page intentionally left blank

Market Timing and Moving Averages

Fiscal Sustainability and Competitiveness in Europe and Asia

Risk Management in Emerging Markets

Behavioral Finance and Capital Markets

Global Stock Markets and Portfolio Management

International Papers in Political Economy

Estimating SMEs Cost of Equity Using a Value at Risk Approach

Structural Revolution in International Business Architecture

Dark Pools. The Structure and Future of Off-Exchange Trading and Liquidity ERIK BANKS

Also by Steven I. Davis

Monetary Policy and the Economy in South Africa

Leveraged Exchange-Traded Funds

Governance and Risk in Emerging and Global Markets

Microcredit Guarantee Funds in the Mediterranean

Sovereign Risk and Public-Private Partnership During the Euro Crisis

The Financialization of Commodity Markets

Value-Based Working Capital Management

QUANTITATIVE METHODS FOR ELECTRICITY TRADING AND RISK MANAGEMENT

Regionalism among Developing Countries

Understanding the Crisis in Greece

Bancassurance. palgrave. Nadege Genetay and Philip Molyneux. macmillan

Reform and Responsibility in the Remaking of the Swedish National Pension System

Green Taxation in Question

ENERGY HEDGING IN ASIA

Hybrid Securities Structuring, Pricing and Risk Assessment

BANCASSURANCE IN EUROPE

Banking and Financial Systems in the Arab World

INWARD INVESTMENT, TECHNOLOGICAL CHANGE AND GROWTH

Small Countries in a Global Economy

The Cost of Capital. Eva R. Porras

Fiscal Policy without a State in EMU?

Equity Derivatives Explained

THE BANKING SYSTEM OF CYPRUS

MIDDLE-CLASS BLACKS IN BRITAIN

DO WORLD BANK AND IMF POLICIES WORK?

Internationalization of Banks

PROJECT ANALYSIS IN DEVELOPING COUNTRIES

The Reform of Macroeconomic Policy

Swedish Taxation. Developments since Edited by MAGNUS HENREKSON AND MIKAEL STENKULA

Also by Francis A. Lees

U r b a n L a n d. Economics. J a c k H a r v e y & E r n i e J o w s e y

Global Financial Markets series

DOI: / Risk and Trading on London s Alternative Investment Market

MACROECONOMICS An Introductory Text

THE REGIONAL DISTRIBUTION OF FOREIGN MANUFACTURING INVESTMENT IN THE UK

PLANNING PUBLIC SPENDING IN THE UK

LENDING IN INTERNATIONAL COMMERCIAL BANKING

Consumer Credit Fundamentals

Quantitative Exchange Rate Economics in Developing Countries

Basic Income Guarantee

Consumer Credit Fundamentals

Project Analysis in Developing Countries

Microeconomic Reform in Britain

REGISTER. -of- DEFUNCT COMPANIES

Also by Shirley Dex BRITISH AND AMERICAN WOMEN AT WORK (with Lois B. Shaw) FRENCH AND BRITISH MOTHERS AT WORK (with Patricia Walters and David Alden)

Asset Markets, Portfolio Choice and Macroeconomic Activity

THE ECONOMICS OF NORTH SEA OIL TAXATION

INTRODUCTION TO ACCOUNTANCY AND FINANCE

MASTERING ACCOUNTING

EUROPEAN MACROECONOMICS

Global Financial Markets

Fundamentals of Actuarial Mathematics

A GENERAL APPROACH TO MACROECONOMIC POLICY

MANAGEMENT ACCOUNTING, ORGANIZATIONAL THEORY AND CAPITAL BUDGETING

Political Economy of Brazil

ACCOUNTING IN AN INFLATIONARY ENVIRONMENT

Redrawing the Global Economy

DOI: / Payday Lending

Palgrave Macmillan Studies in Banking and Financial Institutions

John Wigley and Carol Lipman: The Enterprise Economy

THE SEPARATION OF COMMERCIAL AND INVESTMENT BANKING The Glass-Steagall Act Revisited and Reconsidered

The Industrial Organization of Banking

Exchange Rate Volatility, Trade, and Capital Flows under Alternative Exchange Rate Regimes

TAX POLICY IN THE NORDIC COUNTRIES

The Multinational Subsidiary

MONETARISM AND THE DEMISE OF KEYNESIAN ECONOMICS

Economic Capital. and Financial Risk Management for Financial Services Firms and Conglomerates BRUCE T. PORTEOUS AND PRADIP TAPADAR

The Economics of Foreign Exchange and Global Finance. Second Edition

This page intentionally left blank

Exchange Rate Forecasting: Techniques and Applications

The Successes and Failures of Economic Transition

CURRENT ISSUES IN INTERNATIONAL MONETARY ECONOMICS

FINANCIAL INSTABILITY AND THE INTERNATIONAL DEBT PROBLEM

Central Bank Independence, Accountability, and Transparency

The Touche Ross Tax Guide for the Self-Employed

EXCHANGE-TRADED FUNDS AS AN INVESTMENT OPTION

Macmillan Work Out Series. Accounting. A-Level

Palgrave Macmillan Studies in Banking and Financial Institutions

The Indian Mutual Fund Industry

Optimization Methods for Gas and Power Markets

Asian Fixed. Income. Markets

ACCOUNTING FOR THE GLOBAL ECONOMY

The Global Financial Crisis in Retrospect

INTERNATIONAL DEBT AND CENTRAL BANKING IN THE 1980s

Andreas Schertzinger Creating Value in Insurance Mergers and Acquisitions

COMPARATIVE INTERNATIONAL ACCOUNTING

Transcription:

Cross-border Mergers and Acquisitions

This page intentionally left blank

Cross-border Mergers and Acquisitions Theory and Empirical Evidence Ottorino Morresi and Alberto Pezzi

cross-border mergers and acquisitions Copyright Ottorino Morresi and Alberto Pezzi, 2014. Softcover reprint of the hardcover 1st edition 2014 978-1-137-35977-3 All rights reserved. First published in 2014 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the World, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978 1 349 47174 4 ISBN 978 1 137 35762 5 (ebook) DOI 10.1057/9781137357625 Library of Congress Cataloging-in-Publication Data Morresi, Ottorino. Cross-border mergers and acquisitions : theory and empirical evidence / Ottorino Morresi, Alberto Pezzi. pages cm Summary: The book describes the relevance of cross-border mergers and acquisitions (M&As) in terms of economical, geographical, and historical impact and provides the reader with a complete guide to understanding the main concepts, theories, and empirical results of cross-border M&As Provided by publisher. Includes bibliographical references and index. ISBN 978 1 137 35977 3 (hardback) 1. Consolidation and merger of corporations. I. Pezzi, Alberto. II. Title. HG4028.M4.M67 2014 338.8 3 dc23 2014022122 A catalogue record of the book is available from the British Library. Design by Integra Software Services First edition: November 2014 10987654321

To my mom, for her endless patience and support Ottorino Morresi To my princesses Flavia and Giulia Alberto Pezzi

This page intentionally left blank

Contents List of Figures List of Tables Preface Acknowledgments 1 The M&A Phenomenon 1 2 Cross-border M&As: Theory and Strategic Process 85 3 Cross-border M&As and Performance: Empirical Evidence 137 4 Cross-border M&As and Stock Market Performance: Evidence from Medium-Sized US and European Firms 191 Index 231 ix xi xiii xvii

This page intentionally left blank

Figures 1.1 Ratio of value offered to number of transactions 25 2.1 Choice of entry mode 86 2.2 Main advantages and disadvantages of acquisitions and greenfield investments 89 2.3 A framework for evaluating entry and development strategies 91 2.4 Potential alternatives within the export option 93 2.5 A sequence of steps to select country of destination alternatives 111 2.6 Principal key location factors 113

This page intentionally left blank

Tables 1.1 Worldwide deal market: A summary 12 1.2 Regional distribution of capital flows 15 1.3 Historical overview of M&A transactions (number and value) 16 1.4 Historical overview of M&A transactions: method of payment, P/E offered, and premium offered 20 1.5 Cross-border M&As 23 1.6 Largest high-profile cross-border deals of all time 26 1.7 Largest high-profile cross-border deals of all time involving US target firms 30 1.8 Largest high-profile cross-border deals of all time involving US acquiring firms 35 1.9 Largest high-profile cross-border deals of all time outside the US 40 1.10 Cross-border M&A purchases by country of buyer (US$ billion) developed Europe 46 1.11 Cross-border M&A purchases by country of buyer (# Deals) developed Europe 47 1.12 Cross-border M&A purchases by country of target (US$ billion) developed countries 48 1.13 Cross-border M&A purchases by country of target (# Deals) developed countries 49 1.14 Cross-border takeovers by industry 50 1.15 Cross-border M&A purchases performed by US firms targeting emerging countries (US$ million) 54 1.16 Cross-border M&A purchases performed by US firms targeting emerging countries (# Deals) 56 1.17 Cross-border M&A purchases performed by European firms targeting emerging countries (US$ million) 58

xii List of Tables 1.18 Cross-border M&A purchases performed by European firms targeting emerging countries (# Deals) 60 1.19 Cross-border M&A purchases performed by emerging European firms (US$ million) 62 1.20 Cross-border M&A purchases performed by emerging European firms (# Deals) 63 1.21 Cross-border M&A purchases performed by Brazil, Russia, India, China, and South Africa (BRICS) US$ million 64 1.22 Cross-border M&A purchases performed by Brazil, Russia, India, China, and South Africa (BRICS) # Deals 65 4.1 Variable description 197 4.2 Descriptive statistics 204 4.3 Distribution of events by year of operation and country of origin 205 4.4 Distribution of events by country of destination and country of origin 206 4.5 Distribution of events by industry and country of origin 210 4.6 Distribution of events by industry relatedness 212 4.7 Distribution of events by entry mode, country of origin, and target region 213 4.8 Event study results 217 4.9 Determinants of value creation in Europe 220 4.10 Determinants of value creation in the US 221

Preface The book provides the reader with a complete guide to understanding the main concepts, theories, and empirical results of cross-border mergers and acquisitions (M&As). Since the 1990s M&A wave, M&As have been turning into a global phenomenon with a huge increase in international deals, often exceeding the number of domestic ones. A large number of theoretical and empirical studies have focused on this topic from several perspectives: motives, strategic issues, performance, and so on. The distinctive characteristics of the book can be summarized as follows. First, it provides a unified framework that ties the huge growing number of theoretical and empirical studies on cross-border deals together. These studies are highly fragmented in terms of the issues covered and there have been only a few attempts to integrate them into a single, organized book. These works themselves often take the form of collections of articles without providing a clear thread that offers the reader an organized, articulated, and logical framework of the entire issue. Second, it overcomes a characteristic of M&A books, that of treating cross-border deals as a specific characteristic of M&As and paying little attention to the fact that they have a high number of distinctive elements that differentiate them from domestic operations. Third, it also pays attention to cross-border M&As performed by small- and medium-sized enterprises (SMEs), a point that is often overlooked by empirical studies. The book describes the relevance of the phenomenon in terms of economic, geographical, and historical impact; it explains the main theories on cross-border M&As and tries to answer the following questions, among others: why do so many firms invest abroad through M&As? How does a firm select the country of destination and the target firm? How do firms involved in cross-border M&As perform? Is M&A performance different between SMEs and large firms? What are the main determinants of M&A performance? What are the main limits and biases of empirical research on cross-border M&As?

xiv Preface In detail, Chapter 1 discusses domestic and international M&A activity since the early twentieth century. It describes the characteristics of each merger wave, from the first to the sixth and last movement so far, and provides an overview of the worldwide deal market together with yearly data on M&A activity involving US firms since the early 1960s. It also offers a special focus on cross-border M&As involving US, European, and emergingmarket firms and provides analytical, historical, and up-to-date information on the number, value, and distribution by industry and country of crossborder M&As from the late 1980s to 2012. It concludes with a discussion of factors that could have obstructed international M&A activity such as nationalism and antitrust rules and a discussion of alternatives to M&As. Chapter 2 analyzes the strategic process that drives the decision to enter an international market and develop the company s presence abroad through cross-border acquisitions. It seeks to examine the reasons for performing a cross-border M&A, considering three distinct but related groups of reasons: strategic motives, external shocks, and personal reasons. It then focuses on the strategic approaches adopted when selecting the country of destination in terms of assessment of the countries attractiveness and management of distance between the home country and foreign country. A range of potential drawbacks are analyzed to highlight post-acquisition problems: information asymmetries, lack of market experience, integration problems, and speed in deal closing and integration. Finally, the chapter explores the possible differences in the internationalization path in terms of speed, scope, and performance between companies from emerging countries and companies from advanced countries. Chapter 3 reviews about 70 papers published over the last 30 years that analyze the link between cross-border M&As and a firm s market- and accounting-based performance. It takes into account the performance scored by target firms, bidding firms, and combined firms in response to announcements of cross-border deals. Short-run market performance is compared with both long-run returns and accounting ratios. It also examines whether firms that invest abroad are worth more than domestic firms. The chapter explores the determinants of firm performance and focuses on internationally specific ones such as economic development and market integration of target and home country, cultural and geographic distance, corporate governance quality, and so on. It concludes with a discussion of the limits and biases of empirical research. Chapter 4 analyzes short-term market returns in response to announcements of cross-border investments performed by medium-sized US and European firms. Only a limited number of studies take the market performance of small- and medium-sized firms that make acquisitions abroad into

Preface xv account. Market reaction is positive and statistically significant in almost all countries but stronger in British, Italian, Belgian, and French firms, and weaker in US, Dutch, German, and Spanish firms. US firms create more value when they enter growing and emerging countries, are more indebted, acquire large firms, and use cash as a means of payment whereas European firms perform better when they invest in growing countries and in related and non-technology-based industries, acquire large stakes, have scored good past accounting performance, and use cash as a means of payment.

This page intentionally left blank

Acknowledgments We thank Marco Manili, Andrea Cinardo, Giacomo Freccero, and Massimiliano Lunardi for their help in data collection. We are also grateful to conference participants and discussants at the 2013 AIB Special Meeting in Moscow, 2012 SFA Annual Meeting in Charleston, 2012 World Finance Conference in Rio de Janeiro, 2012 AIB Annual Meeting in Washington, 2012 EURAM Annual Meeting in Rotterdam, 2012 SMS Annual Meeting in Prague, 2010 Wolpertinger Annual Meeting in Bangor, 2010 Portuguese Finance Network Annual Meeting in Azores, 2009 Vaasa Conference on International Business in Vaasa, for helpful comments. Finally, we thank an anonymous referee for constructive suggestions to the book proposal.