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Dissertation
Assignment Tutor:
Mr Leonidas Barbopoulos
Module Code:
ECON 43015
Assignment Description:
Summative Assignment
Z0507577
Title: Public versus Private Acquisitions, Information asymmetry and bidder gains
Abstract
In this study we examine the announcement share returns of UK acquirers in almost 4,000
domestic acquisitions of public, private and subsidiaries targets over the period 1996 to 2007.
Results indicate that overall acquirers experience significant returns at the announcement of a
takeover proposal irrespectively of the target status and the method of payment. Public
acquisitions are not necessarily non-value increasing in the UK market, although the gains are
dependant on mean of payment. Acquirers of unlisted targets earn a significant average abnormal
return of 1.48% when they use stock, while acquirers of listed targets lose 0.36%. Moreover our
analysis confirms the existence of a size effect in acquisitions returns, with small acquirers to enjoy
higher returns than large acquirers.
By
Z0507577
Finance Dissertation
School of Economics, Finance and Business
September 2008
Public versus Private Acquisitions, Information asymmetry and bidder gains
However, it has been well supported that in the announcement period of a takeover, M&As
are not necessarily wealth-increasing. On average, bidders experience positive abnormal
returns in private held acquisitions, while when firms acquire public targets then the
acquirer, on average, will experience losses. These results have been well documented in
the US and UK and characterise these competitive markets.
Our evidence shows that acquirer experience significant gains in private target takeovers
using stock as method of payment, which contrasts with the negative abnormal return
bidders experience in public acquisitions in stock offers. Further our results confirm the
superiority of small size acquirers against the large one and finally based on our bid ask
Conran and Niden (1992) for the USA, Cheung and Shum (1993 for Hong Kong), Draper and Paudyal
(1999) for UK market
2
Faccio and Masulis (2005) report that approximately 90% of UK (and Irish) acquisitions involve unlisted
target firms; Draper and Paudyal (2006) report approximately 87% of the UK acquisitions involved privately
held targets. However, Moeller et al., (2005) show that approximately 53% of US acquisitions involve
unlisted targets.
Targets status and method of payment are major factors of gains to acquiring firms around
acquisition announcements, as they convey information about the target. Travlos (1988)
suggest that financing the takeover with different methods of payment, bidders experience
different returns. For public acquisitions its more profitable to use cash as mean of
payment than equities. Among the same line Draper and Paudyal (1999) document that
the method of payment conveys useful information to the market as this reflects managers
views of their company. A stock exchange offer, suggests that at least acquirer firms
share is not undervalued. Chang (1998) based on three hypotheses4 report that stock
exchange creates value for acquirer shareholders in private acquisitions.
The purpose of this study is to examine whether UK listed targets outperform unlisted
targets. Accordingly this project analyzes several issues pertinent to acquisitions involved
listed and unlisted targets, such as: (a) Do bidding firms shareholders enjoy higher
positive announcement period returns when targets are unlisted? (b) What is the role of
the method of payment in acquiring private and public firms? (c) Do the gains from unlisted
target acquisitions vary with the level of information asymmetry? (d)Do value acquirers
outperform the glamour one over the short run period? (e) What is the role of acquirer size
in short-run gains to acquiring firms shareholders?
The remainder of this chapter is organized as follows: Section (2) two reviews the literature
and lays the theoretical ground for the study, section (3) develops the hypotheses I test,
section (4) describes the sample and discusses the methodology used in estimating the
excess returns of bidding firms, section (5) I report the empirical evidence and the
interpretations of the results. Finally, section (6) concludes the study.
A possible reason for the limited competition regarding privately held firms, as proposed by the same author, is the
high information search cost given the sacristy of public available information for this type of firms.
4
monitoring hypothesis, the limited competition hypothesis and the information hypothesis
2. Literature Review
This section reviews the literature which is closely related to the main research framework
of this investigation. I mainly focus on earlier studies that investigate the role of the target
status, payment method and relative size in shaping the gains to acquisitions bidding for
private versus private target firms. Moreover, I review the literature based on the existing
theoretical framework of the bid-ask spread while I describe to which extent it captures the
level of firms information asymmetry.
Almost all the studies unanimously have suggested that the acquisitions create positive
gains to the target firms shareholders and no essential loss to the bidding firms
shareholders6. The results of the majority of the studies revealed that public acquisitions
destroy value in the short run.7 Hansen and Lott (1996) based on a sample of 252
acquisitions of public and private companies over the period 1985-1991 in US market
investigate that acquirers gain a 2% higher return when purchasing privately owned
targets than public one. Thus happen because private targets have more freedom in
determining their auction methods as competitive as they prefer, instead of listed targets
5
Existing empirical work that examines gains to acquisitions of subsidiary targets such as Fuller, Netter and
Stegemoller (2002) includes in this portfolio only subsidiaries that are not listed.
6
See for example Conrad and Niden(1992) for the USA, Cheung and Shum (1993) for Hong Kong, Draper
and Paudyal (1999) for the UK. More recent studies such as Goergen and Ronneboog (2004) for European
countries) have come to confirm this finding.
7
See for example Firth (1980), Asquith (1983), Travlos (1987) and Limmack (1991). More recent studies
such as Andrade, Mitchell and Stafford (2001), Fuller, Netter and Stegemoller (2002), Moeller, Schlingemann
and Stulz (2004) and Faccio, McConnell and Stolin (2006) have come to confirm this finding.
Subsequent studies such as Ang and Kohers (2001) and Moeller et al. (2004) posit
significant positive abnormal returns in cash stock and mix offers for acquirers of privately
held targets for the US market with share bidders gaining the largest abnormal return. On
the other hand the abnormal returns for acquirers of listed targets depend on the mean of
payment with those of paying with shares to suffer a loss. Ang and Kohers (2001) argue
that buyers have to pay higher premiums for private targets than for publicly targets. This
is consistent with the strong bargaining power and timing option of privately held firms. In
10
Da Silva Rosa, Limmack, Supriadi, and Woodliff (2001) for Australia, respectively confirm
that acquirers of privately held targets achieve a significant positive excess return, a result
which is
in contrast with the insignificant findings based on bids for public targets.
Contrary to Chang (1998) in Australia market most of acquisitions of private targets are
financed by cash and this create higher positive returns than when the mean of payment is
stock. They comment that these results are accordant with the explanation that the lower
competition for private targets in Australian market permits acquires to cover more of the
economic rent from acquisitions by offering cash than stock.
Draper and Paudyal (2006) for the UK market using a very large sample of 8597
acquisitions of listed and privately held targets between 1981 and 2001 document that
bidder of listed targets do not recognise any substantial loss during the period surrounding
of the announcement. In contrast acquirers of privately held targets experience significant
positive returns. More specific bidders for private firms using stock as method of payment
earn the largest abnormal return while bidders for listed firms paying in shares lose.
Furthermore acquirers of public targets paying in cash do not experience any substantial
loss, compared with bidders for private targets who earn significant excess returns for
cash deals. Their results are consistent with the monitoring and liquidity hypotheses which
are analysed above and also are accordant to asymmetric information hypothesis of Myers
and Majluf (1984). In a word of asymmetric information the method of payment signals
valuable information to the market. Managers of the private own targets have incentives to
asses thoroughly the value of the bidding firm, especially in the case of stock payment.
This close examination decreases information asymmetry. Subsequent if they finally
accept to hold a large block of shares in a merged firm, this will convey favorable
information for the bidding firms stock in the market.
In a more recent study relative to information asymmetry, Draper and Paudyal (2008)
argue that undervalued bidders with high information asymmetry experience higher
earnings than other bidders. This happens because managers of undervalued firms with
11
A more general hypothesis offered by Draper and Paudyal (2006) in order to explain why
bidders for private targets earn more than bidders for listed targets is the managerial
motive hypothesis. They comment that when managers are willingness to acquire a small
and unknown private firm this means that they are motivated more from potential
synergies from the acquisition rather than from their private benefits. Moreover they argue
that small private firms can be integrated easier from the acquiring firm rather than large
listed firm.
Many researches find that the decision about method of payment is consistent with large
differences in outcomes. Travlos (1987) examine to which extent different methods of
payment results in different returns. The author document when acquirers use stock to
acquire a private company, the announcement returns are significantly positive on
average, whereas exactly the opposite applies in case of publicly traded targets. Besides
the acquirer announcement returns are affected by the method of payment only when the
target is private and difficult to value, as the use of stock-swap can mitigate the information
asymmetry about the private firm (Hansen, 1987). Furthermore he emphasizes that except
of investors interpretation equity and cash offers have different tax implications. Cash
offers generates in general tax obligations for the firm stockholders instead of stock
exchange offers which are tax-free until the stock is sold. Consequently if a firm makes
cash offer should also pay a higher premium to offset the tax obligation of the selling
stockholders.
It becomes obvious from the discussion above that acquirers buying unlisted targets will
outperform those buying listed targets, irrespective of the method of payment used in the
transaction in most cases.
12
A more recent study from Rhodes Kropf and Robinson (2008) offers another possible
explanation of why small acquirers outperform large acquirers. The conventional wisdom
suggests that high asset value firms buy low asset value firms; while they show that a
more appropriate interpretation is that firms with similar asset valuations purchase one
another. As a result it is more likely that large firms acquire large, public firms. Given that it
is more profitable for acquirers to acquire private, as opposed to public targets then this
can be a reason why small acquirers gain more.
8
The authors classify small acquirers as firms whose capitalization falls below the 25th percentile of NYSE
firms at the year of the acquisition announcement. All remaining bidders are in the large subset.
13
10
14
Venkatesh and Chiang (1986) posit that the dealer should widen the bid-ask spread when
he or she suspects that the information asymmetry has increased. Bid ask spreads are
changed in a similar way to reflect the information conveyed by the transactions. In the
light of the above, in this paper we will use bid ask spreads in order to estimate the
existence of information asymmetry and its influence on bidder gains and on the method of
payment.
3. Hypothesis development
Based on the above analysis we will develop three hypotheses that will be tested:
Myers and Majluf (1984) propose a theoretical framework in which when acquirers employ
common equity to buy listed firms, they signal to market participants that their stock is
overvalued (information asymmetry). Existing evidence document that in public
acquisitions, acquiring firms returns suffer more when the method of payment is stock
than cash11. On the other hand when firms use stock to acquire private firms with, join
positive returns as this conveys favorable information to the market about the bidding firm.
This happens because closely ownership firms are highly motivated to assess the bidding
11
15
A number of studies have find evidence which support that over the announcement period,
glamour bidders experience higher return than value one. However, Sudarsanam and
Mahate (2003) for the UK market observe that value acquirers outperform the glamour one
even in the short run period. Further major of the studies12 used MTBV as a proxy as they
have recognized its ability to capture and explain stock return. This suggests the following
proposition: Low MTBV bidders gain higher returns in comparison to those with high
MTBV.
12
Fama and French, (1992), (1996) ; Pontiff and Schall (1998); Rau and Vermalen (1998), Lakomishek and
others (1994)
16
We follow Fuller, Netter, and Stegemoller (2002), Moeller, Schlingemann, and Stulz (2004), and Moeller
and Schlingemann (2005) and employ a one million pounds cut-off to avoid results being driven by very
small deals.
17
We finally obtain a sample of 3,924 UK acquisitions deals survive the criteria. This sample
comprises only domestic bids.
ARi Ri Rm (1)
Where ARi ,t is the excess return of bidder i on day t ; Ri ,t is the return of bidder i on day t
measured as the percentage change in return index (inclusive of dividends) of bidder i ;
Rm ,t is the market return defined as the percentage change in FT-All Share index (value
weighted) on day t . The announcement period cumulative excess returns (CARi) is the
sum of the abnormal returns of 5 days (-2 to +2) surrounding the day of the announcement
of the bid as defined in equation (2). Ri and Rm are defined in equation (1).
CARi
t 2
R R (2)
t 2
m t
18
Moving on, Table-2 it can be observed that the most common target is the private one
(52%), followed by the subsidiaries (26%) and the public (22%). This is consistent with
current studies14 which notice that in the most of takeovers privately held firms are the
targets. However, from 2002 onwards the takeover activity has directed towards different
preferences with most of the bidders to be prepared to acquire more listed than unlisted
target firms. In fact, within 2006 and 2007 takeovers of public targets represent more than
36% of all acquisitions and subsidiaries only 14%. On the other hand, within 2001
acquisitions of public targets represent no more than 13% of all transactions while
subsidiaries about 35%. The main explanation why public acquisitions are become more
attractive year to year because is because from year 2002 until now they have started
creating value to the bidders shareholders with a significant average abnormal return of
up to 8%. In contrast with public and subsidiaries targets firms the percentage of the
private acquisitions is almost constant around 50%. Figure 2 confirms the above findings.
From table 3 we can notice that the bidders for listed targets are almost three times larger
than the bidders for private targets while the value of the public acquisition is thirty times
greater than for private acquisitions.
Further by examining the method of payment (Table-4) can be noticed that acquirers pay
for 45.61% of the acquisitions with pure cash, with a mixture of cash and stock for the
44.52% of the acquisitions, and finally bidders pay on the 9.87% on the cases with stock.
The above results come in contrast to those found in other studies examine the UK
market15.where mixed is the most common method of payment followed by cash and
stock. According to target status, private acquisitions are more common to use as mean
of payment cash with 54.98%, then equity with 26.21% and lastly mix payment with
18.81%. On the other hand bidders for private targets prefer to use mixed payment
(62.69%), then cash with 31.13% and only 6.18% of the acquisitions is financed by stock.
14
15
19
5. Empirical Results
5.1 Gains to Acquirers by Payment Method and Target Type
The main aim of this study is to examine bidder gains involved in private and public
acquisitions across the UK market during the period 1996 - 2007. In order to examine our
first hypothesis we split our complete sample into three; public (833) private (2056) and
subsidiaries (1035) targets and then we split it again into three subgroups based on the
method of payment (cash, stock, mix). Table 5 presents cumulative abnormal returns to
acquirers by target status and payment method, during the 5 days surrounding the
announcement. Results are reported for all, public and private deals and individually for
all-cash (Cash), all-stock (Stock) deals and mixed deals. Means are reported first, second
the t-test and third the sample size. The table also reports differentials between public and
private acquisitions in each case using one sample t-test for means. A general remark at
first sight is that overall bidders join significant positive returns (Table-5, all) 2.33%,
irrespective of the method of payment. This is in contrast with the previous literature that
the announcement of a takeover generates no abnormal returns to the shareholders of
bidding firms. Companies that make bids for listed firms experience significant gains of
4.61%, while acquirers of private firms join significant positive abnormal return up to
1.84%. The difference between public and private abnormal return is 2.78% and significant
20
The evidence from table 5 reveals significant differences in bidders gains between cash
and stock offers. As shown in this table, for public acquisitions cash offers are associated
with high significant returns up to 7.63%, while stock offers are associated with negative
abnormal returns (-0.36%) with significance at 10% level. This confirms Travlos (1988)
finding that on the cash financing acquirers earn at the announcement period while on the
stock financing experience significant losses. On the other hand in private acquisitions
when the method of payment is stock bidders returns are higher (1.56%) than when the
method of payment is cash (1.48%). The difference between private and public firm in
stock offers is 1.86%. This is consistent with Chang (1998) that the acquisitions of unlisted
firms through stock exchange tend to create large block holders. The existence of such
large block holders give benefits from their increased monitoring of the activities of the
acquiring firm. This evidence is consistent with the argument that if well informed investors
take large position in a firm this will transfer well information about the firm (monitoring
hypothesis). Accordingly the evidence that public acquisitions lose in stock offers can lend
support to the asymmetric information hypothesis developed by Myers and Majluf (1984)
that issuing equity to the public conveys bad news to the market for the acquiring firms
stock. Moreover from table 5 we can report that private firms takeovers create wealth to
the bidders irrespective of methods of payment. This reconfirms the prediction on
managerial motive hypothesis and the liquidity hypothesis analysed in the literature review.
Further it can be observed that mixed offers create always significant excess returns for
the acquirers and irrespective of target status. An explanation to why mixed payments are
higher than pure cash or stock is suggested by Eckbo, Espen, Giammarino, and Heinkel,
(1990) were the authors explain that these offers are consisted of both synergy revaluation
16
Chang (1998), Drapper and Paudyal (2006), Conn, Cosh and others document that bidder returns in
private acquisition will be higher than in public deals.
21
If the target is listed the dummy variable takes the value 1, if it is private 2 and if it is subsidiary 3.
22
The results illustrated in Panel B (public acquisitions) reveal that bidders earn higher
significant abnormal returns (2.34 %) when the bid ask spread is low irrespectively of the
method of payment. Further it can be observed that in cash offers both in low and high bid
ask spread acquirers detect significant abnormal return. In addition in low information
asymmetry acquirers of private targets can have an insignificant gain even if they use
stock as method of payment. Another interesting result is that in case of high information
asymmetry bidders use more often their stock as method of payment than in case of low
information asymmetry. This could be a signal that their stock is overvalued, as buyers
tend to offer stock when they believe that their shares are overvalued especial in case of
high information asymmetry, where managers of the company know something that the
market does not (Ang and Cheng, 2003).
Panel C presents the abnormal returns of private firms. Acquirers earn almost the same
significant abnormal returns in the case of low and high information asymmetry when they
offer cash. When the method of payment is stock the differentials between high and low
bid ask spread are insignificant using t-test, maybe due to the small size of the sample.
However in contrast with public targets, bidders acquiring private firms with stock in the
case of low information asymmetry gain 2.99% with 10% significance using t-test. This
happens as private firms with very close ownership have more incentives to examine
bidders stock, as at the end they will hold a large block of shares in a merged firm.
Subsequent if they finally accept the offer this will convey favorable information for the
bidding firms stock in the market.
Moving on to panel D which cooperates with subsidiaries we can report that in the case of
stock payment we have the biggest significant (at 5%) difference (6.53%) between low and
high bid ask spread. Finally panel E reports differentials between public and private
acquisitions in each case using one sample t-test for mean. A general remark at first sight
23
18
See for instance Moeller et al. (2004) report that small acquirers outperform large by a statistically
significant margin of 2.3%, Rhodes, Kropf and Robinson (2008) confirm the previous result.
24
experience higher abnormal returns than high MV acquirers. In the case of cash payment
High MV acquirers experience significant abnormal returns of 4.56% whereas acquirers of
low MV earn 9.23%. For stock and mix method of payment the reported differences are
not significant. Further panel C engages with private firms. Our findings posit the
superiority of small acquirers than the large one with a significant difference of 1.03%. The
differential is statistically significant at the 5% level. For all the three methods of payment
we find that low MV acquirers enjoy higher abnormal returns than high MV acquirers. Low
MV acquirers experience abnormal returns ranging from 1.17% to 2.23% while abnormal
returns range from 0.16% to 1.12% for high MV acquirers. Moreover panel D cooperates
with subsidiaries targets. In this case for each method of payment individually the reported
differences are not significant. Finally in panel E we can observe the differentials between
public and private firms. The results document that the overall abnormal return to bidders
of listed targets remain higher than the abnormal return of unlisted targets for both relative
size groups. However in mix and stock offers the excess return of private firms
acquisitions is higher than those of public firms acquisitions but the results are
insignificant. Thus we can infer, after considering the relative size of the deal, that our
findings offer partial support to the validity of our first hypothesis.
Summing up, the general overview that is extracted from the use of MV as benchmark is
that overall our results are fairly consistent with previous US and UK studies that report
higher significant excess return from the low MV acquirers than high MV acquirers at the
time of the bid announcement. Consequently we can accept our third hypothesis.
25
26
19
27
28
Demsetz, H., Lehn, K., 1985. The structure of corporate ownership: causes and
consequences. Journal of Political Economy, pp.1155-1177.
29
30
Firth, M. (1980), Takeovers, Shareholder Returns, and the Theory of the Firm. Quarterly
Journal of Economics 94, pp. 235-260.
Lang, L.H.P., Stulz, R.M., Walkling, R.A., (1991). A test of the free cash flow hypothesis:
the case of bidder returns. Journal of Financial Economics 29, pp. 315336.
Mahate A. and Sudarsanam S. (2003), Glamour Acquirers, Method of Payment and Post
acquisition Performance: The UK Evidence. Journal of Business Finance and Accounting
30, pp.299-342.
Maloney, M.T., McCormick, R.E., Mitchell, M.L., (1993). Managerial decision making and
capital structure. Journal of Business 66, pp.189217.
Menyah K. and Paudyal K. (2000). The components of bid-ask spreads on the
London Stock Exchange. Journal of Banking & Finance, Vol. 24, pp.1767-1785.
Mitchell, M., Pulvino, T., Stafford, E., (2004). Price pressure around mergers. Journal of
Finance 59, pp.3163.
Moeller, S., Frederik. P. Schlingemann and Rene. M. Stulz (2004), Firm Size and the
Gains from Acquisitions. Journal of Financial Economics 73, pp. 201-228.
Moeller, S., Frederik. P. Schlingemann and Rene. M. Stulz (2007), Do acquirers with more
uncertain growth prospects gain less from acquisitions? Review of Financial Studies,
Forthcoming.
Myers, S., and Majluf, N. (1984), Corporate Financing and Investment Decisions when
Firms have Information that Investors Do Not Have. Journal of Financial Economics 13,
pp. 187-221.
Rau, P., and Vermaelen T. (1998), Glamour, Value and the Post-acquisition Performance
of Acquiring Firms. Journal of Financial Economics 49, pp. 223-253.
31
Roll, R., (1986). The hubris hypothesis of corporate takeovers. Journal of Business 59,
pp.197216.
Rhodes, Kropf and Robinson (2008), The Market for Mergers and the Boundaries of the
Firm. Journal of Finance, Vol. 63, pp. 1169 1211.
Servaes, H., (1991). Tobins q, agency costs, and corporate control: an empirical analysis
of firm specific parameters. Journal of Finance, Vol. 46, pp.409419.
Stoll, H., (1989). Inferring the components of the bid ask spread: Theory and empirical
tests. Journal of Finance. Vol. 44, pp.753-776.
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Stock Returns. Journal of Finance 42, pp. 943-963.
32
Table 1
The sample consists of all transactions in Thomson Financial SDC mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the
transaction and ends up with more than 50 percent as a result of the deal. Acquisition activity is the total
number of transactions. Mean, median and total deal values are in UK pounds.
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Acquisition
Activity
348
398
411
409
434
298
296
250
269
277
304
230
Sum
3924
Mean
401.16822
314.20621
436.63745
748.71765
1055.6104
745.34503
471.43172
709.58324
903.81647
629.15628
869.02934
1221.0592
Market Value
Market to Book Value
Median
Total
Mean
Meadian
Total
77.735
139606.54 3.0770402
2.17
1070.81
67.29
109343.76 -0.0067816
1.7
1820.69
72.95
179457.99 5.2900973
2.12
2174.23
100.14
306225.52 2.9462347
1.57
1205.01
123.615
458134.91 4.3967972
2.08
1908.21
72.18
222112.82 2.1257383
1.56
633.47
45.98
139543.79 2.3411486
1.5
692.98
51.84
177395.81
2.1784
1.335
544.6
53.9
243126.63 2.031487
1.47
546.47
91.19
174276.29 0.5980144
0.65
165.65
107.36
264184.92 1.7613816
1.83
535.46
107.975
280843.61 2.9622609
2.36
681.32
388323
2694253
Figure 1
Acquisition Activity
500
400
300
200
100
0
Acquisition Activity
19
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
07
Number of Deals
Year
Year
33
11979
Year
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Average
Acquisition
Activity
348
398
411
409
434
298
296
250
269
277
304
230
Public
Private
Subsidiaries
12.07%
13.32%
13.38%
19.80%
14.75%
12.42%
22.97%
34.00%
23.42%
31.05%
36.18%
36.52%
59.48%
55.78%
50.12%
50.61%
56.45%
52.68%
54.39%
40.80%
54.28%
55.60%
44.41%
49.57%
27.01%
30.90%
36.25%
29.58%
28.80%
34.90%
22.64%
25.20%
22.30%
13.36%
19.41%
13.91%
22.49%
52.01%
25.36%
4.63%
1.84%
Figure 2
Target Status
80.00%
60.00%
40.00%
20.00%
0.00%
Public
Private
19
96
19
9
19 7
98
19
99
20
0
20 0
01
20
0
20 2
03
20
04
20
0
20 5
06
20
07
Subsidiaries
Year
34
1.49%
1144.84
371
4.63%
MV of Bidders (m)
Value of the Deal (m)
Event period Gross Return
(-2, 2 days)in %
89.49
40.06
2.56%
5390.19
1570.58
0.12
408.31
12.2
1.84%
68.87
3.66
0.99%
2593.22
44.21
0.075
Table 4
The sample consists of all transactions in Thomson Financial SDC mergers and acquisitions database between 1996
and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction and ends up with more
than 50 percent as a result of the deal. The transaction value is above 1 million US dollars and the target-to-bidder
relative market value is above one percent. The acquirer has data available in Thomson Financial Datastream.
Acquisition activity is the total number of transactions. All-cash (%) is the percentage of deals financed with pure cash
while all-stocks (%) is the percentage of deals financed with equity. Mixed (%) is the percentage of deals that are neither
financed with all-cash, nor all-shares
Year
All
Stock
9.77%
10.30%
9.98%
9.78%
12.21%
14.43%
7.09%
9.20%
8.55%
8.66%
8.88%
9.57%
9.87%
Mix
52.01%
50.50%
41.12%
44.99%
54.15%
56.71%
39.53%
35.20%
43.12%
43.32%
36.18%
37.39%
44.52%
Cash
28.57%
41.51%
43.64%
38.27%
43.75%
37.84%
77.94%
67.06%
66.67%
62.79%
79.09%
72.62%
54.98%
Public
Stock
42.86%
37.74%
34.55%
25.93%
37.50%
43.24%
7.35%
17.65%
19.05%
17.44%
14.55%
16.67%
26.21%
Mix
28.57%
20.75%
21.82%
35.80%
18.75%
18.92%
14.71%
15.29%
14.29%
19.77%
6.36%
10.71%
18.81%
Cash
26.57%
31.98%
37.38%
34.78%
19.59%
12.74%
35.40%
38.24%
36.30%
33.77%
32.59%
34.21%
31.13%
Private
Stock
6.28%
4.95%
6.80%
5.31%
8.98%
9.55%
7.45%
5.88%
5.48%
3.90%
5.19%
4.39%
6.18%
Mix
67.15%
63.06%
55.83%
59.90%
71.43%
77.71%
57.14%
55.88%
58.22%
62.34%
62.22%
61.40%
62.69%
Figure 3
ALL
60.00%
Cash
40.00%
Stock
20.00%
Mix
0.00%
19
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
01
20
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
07
Cash
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Mean
Cash
38.22%
39.20%
48.91%
45.23%
33.64%
28.86%
53.38%
55.60%
48.33%
48.01%
54.93%
53.04%
45.61%
Year
35
Subsidiaries
Cash
Stock
Mix
64.89%
3.19%
31.91%
51.22%
8.13%
40.65%
67.11%
5.37%
27.52%
67.77%
6.61%
25.62%
56.00%
5.60%
38.40%
50.00% 11.54% 38.46%
71.64%
5.97%
22.39%
68.25%
3.17%
28.57%
58.33%
5.00%
36.67%
72.97%
8.11%
18.92%
61.02%
6.78%
32.20%
68.75%
9.38%
21.88%
63.16%
6.57%
30.27%
Cash
Stock
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Mix
Year
Figure 5
Private
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
Cash
Stock
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
Mix
Year
Figure 6
Mix
80.00%
60.00%
Cash
40.00%
Stock
20.00%
Mix
Year
36
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0.00%
mean
All
t-stat
N
mean
Cash
t-stat
N
mean
Stock
t-stat
N
mean
Mix
t-stat
N
ALL
Publ
Priv
Sub
Priv Vs Publ
2.33%***
(17.26)
3924
3.3%***
(16.56)
1756
0.75%*
(1.44)
392
1.74%***
(9.04)
1776
4.61%***
(11.62)
833
7.63%***
(14.87)
490
-0.36%*
(-0.51)
195
1.25%**
(1.42)
148
1.84%***
(11.1)
2056
1.48%***
(6.81)
627
1.56%*
(1.57)
130
2.1%***
(9.19)
1299
1.45%***
(6.83)
1035
1.68%***
(6.68)
639
2.59%**
(2.23)
67
0.89%**
(2.14)
329
2.78%***
(6.46)
37
6.07%***
(10.8)
-1.86%
(-1.57)
-0.758%*
(-0.83)
Table 6
The sample consists of all transactions in Thomson Financial SDC global mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction
and ends up with more than 50 percent as a result of the deal. The transaction value is above 1 million UK pounds
and the target-to-bidder relative market value is above one percent. The acquirer has data available in Thomson
Financial DataStream. Acquirers are sorted in three subsets based on their relative size (large, medium and low)
and target status (all, private, public, subsidiaries), and the method of payment (cash, stock, mix). Panel A reports
results for all ragets, panel B for private targets, panel C for private targets, D for subsidiaries and E for differential
between public and private. Cumulative market adjusted returns (CARs) for a five day window surrounding the
acquisition. Market adjustment is performed by subtracting the corresponding market return from the acquirers
return for each of the five days of the announcement window. The sample is winsorised to the top and bottom 1%
CARs. The table also reports differentials between public and private acquisitions in each case using sample ttests for means. ***, **, and * denote statistical significance at the 1, 5 and 10 percent level respectively. The
sample size is reported below t-test.
Relative size
Panel A
ALL
All
Cash
Stock
Mix
ALL
Cash
Stock
Mix
Cash
Stock
Mix
Low
HML
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
ALL
Priv
All
Medium
Publ
All
High
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
ALL
High
Medium
High
Medium
38
Low
Low
HML
HML
Table 6
Panel D
Sub
All
Cash
Stock
Mix
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
ALL
1.49%***
(6.83)
1035
1.68%***
(6.68)
639
2.59%**
(2.23)
67
0.89%**
(2.14)
329
High
2.17%***
(4.02)
244
3.25%***
(4.33)
106
1.58%
(0.61)
23
1.30%*
(1.72)
115
Medium
Low
HML
1.55%*** 0.98%*** 1.19%*
(4.74)
(3.03)
(1.89)
409
382
1.41%*** 1.33%*** 1.93%**
(3.41)
(0.01329)
(2.35)
255
278
4.75%***
1.15%
0.43%
(2.91)
(0.72)
(0.14)
24
20
1.25%*
-0.20%
1.49%
(2.25) (-0.00198) (1.24)
130
84
Panel E
Publ Vs Priv
All
Cash
Stock
Mix
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
ALL
2.79***%
(6.48)
High
2.94%***
(4.27)
Medium
-0.58%
(-0.69)
Low
-1.78%**
(-2.15)
6.07%***
(10.8)
4.94%***
(4.36)
1.24%
(1.18)
-1.22%
(-0.01223)
-1.84%
(-1.57)
-1.34%
(-0.72)
-4.63%**
(-2.07)
-3.21%
(-1.1)
-0.76%
(-0.83)
-1.63%
(-1.4)
0.39%
(0.26)
-2.3%**
(-0.023)
39
Table 7
The sample consists of all transactions in Thomson Financial SDC global mergers and acquisitions database
between 1996 and 2007 where the acquirer owns less than 10 percent of targets shares prior to the transaction
and ends up with more than 50 percent as a result of the deal. The transaction value is above 1 million UK pounds
and the target-to-bidder relative market value is above one percent. The acquirer has data available in Thomson
Financial DataStream. Acquirers are sorted in three subsets based on their market value (large, medium and low)
and target status (all, private, public, subsidiaries), and the method of payment (cash, stock, mix). Panel A reports
results for all ragets, panel B for private targets, panel C for private targets, D for subsidiaries and E for differential
between public and private. Cumulative market adjusted returns (CARs) for a five day window surrounding the
acquisition. Market adjustment is performed by subtracting the corresponding market return from the acquirers
return for each of the five days of the announcement window. The sample is winsorised to the top and bottom 1%
CARs. The table also reports differentials between public and private acquisitions in each case using sample ttests for means. ***, **, and * denote statistical significance at the 1, 5 and 10 percent level respectively. The
sample size is reported below t-test.
40
Cash
Stock
Mix
ALL
Cash
Stock
Mix
Cash
Stock
Mix
Low
HML
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
1.84%*** 1.12%***
2%***
2.23%*** -1.03%**
(11.1)
(4.52)
(8.2)
(6.64)
(-2.4)
2056
617
721
718
1.48%*** 0.92%*** 1.81%*** 2.18%*** -1.27%**
(6.81)
(2.92)
(4.85)
(4)
(-2.01)
627
242
221
164
1.56%*
0.16%
2.88%
1.17%
-1.01%
(1.57)
(0.08)
(2.03)
(0.83)
(-0.4)
130
21
36
73
2.01%*** 1.45%*** 2.02%*** 2.4%***
-0.95%*
(9.19)
(3.7)
(6.38)
(5.81)
(-1.66)
1299
354
464
481
ALL
Priv
All
Medium
2.34%*** 1.7%***
2.6%***
2.7%*** -1.03%***
(17.27)
(8.42)
(11.84)
(9.89)
(-3.02)
3924
1308
1308
1308
3.3%*** 1.98%*** 3.86%*** 4.63%*** -2.66%***
(16.56)
(7.71)
(11.23)
(9.95)
(-5)
1756
717
562
477
0.75%
1.46%
0.26%
0.72%
0.74%
1.48
1.58
0.32
0.82
0.58
392
97
128
167
1.74%*** 1.34%*** 1.93%*** 1.86%*** -0.00525
(9.04)
(3.97)
(6.59)
(5.2)
(-1.07)
1776
494
618
664
Panel B
Publ
All
High
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
High
ALL
High
Table 7
41
Medium
Medium
Low
Low
HML
HML
Cash
Stock
Mix
ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Publ Vs Priv
High
Medium
Low
High
Medium
Low
All
mean
t-stat
Cash
mean
t-stat
Stock
mean
t-stat
-1.84%
(-1.57)
0.92%
(0.38)
-4.31%**
(-2.39)
-1.68%
(-0.89)
Mix
mean
t-stat
-0.76%
(-0.83)
-0.59%
(-0.48)
0.67%
(0.43)
-2.22%
(-0.98)
Table 8
42
HML
0.06%
(0.1)
-0.64%
(-0.9)
1.38%
(0.49)
0.69%
(0.71)
Cash
Stock
Mix
ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Publ
All
Cash
Stock
Mix
ALL
Cash
Stock
Mix
Medium
Low
HML
High
Medium
Low
HML
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Priv
All
High
ALL
High
Medium
43
Low
HML
-0.00641
(-1.4)
-0.99%*
(-1.67)
-0.50%
(-0.24)
-0.54%
(-0.85)
Table 8
Panel D
Sub
All
Cash
Stock
Mix
ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Publ Vs Priv
High
Medium
Low
High
Medium
Low
All
mean
t-stat
Cash
mean
t-stat
Stock
mean
t-stat
-1.84%
-1.57
-3.70%
(-1.63)
3.37%
(1.25)
-2.34%
(-1.48)
Mix
mean
t-stat
-0.76%
-0.83
-0.51%
(-0.24)
-0.30%
(-0.19)
-1.53%
(-1.15)
Figure 7
44
HML
-0.39%
( -0.69)
0.23%
(0.35)
-0.0335
(-1.39)
-0.82%
(-0.78)
42%
49%
Cash
Stock
Mix
9%
Figure 8
Value firms - Method of Payment
39%
Cash
46%
Stock
Mix
15%
Table 9
45
Cash
Stock
Mix
ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Publ
All
Cash
Stock
Mix
Priv
All
Cash
Stock
Mix
Low
HML
High
Medium
Low
HML
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Medium
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
High
High
Medium
Low
Table 9
46
HML
-0.66%
(-1.53)
-0.03%
(-0.06)
-3.51%
(-1.54)
-0.68%
(-1.21)
Cash
Stock
Mix
ALL
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
mean
t-stat
N
Publ Vs Priv
High
Medium
Low
High
Medium
Low
All
mean
t-stat
Cash
mean
t-stat
Stock
mean
t-stat
-1.84%
-1.57
0.37%
(0.2)
-4.24%** -1.94%**
(-2.09)
(-0.94)
Mix
mean
t-stat
-0.76%
-0.83
-1.03%
(-0.56)
-0.89%**
(-0.7)
47
0.52%
(-0.3)
HML
-0.58%
(-1.06)
0.70%
(1.09)
-6.53**
(-2.44)
-1.72%
(-1.65)