In this paper, we analyse the short-term wealth effects of large (intra)European takeover bids. We find large announcement effects of 9 % for target firms and a cumulative abnormal return that includes the price run-up over the two-month period prior to the announcement date of 23%. However, the share price of the bidding firms reacts positively with a statistically significant announcement effect of only 0.7%. We also show that the status of a takeover bid has a large impact on the short-term wealth effects of target’s and bidder’s shareholders, with hostile acquisitions triggering substantially larger price reactions than friendly mergers and acquisitions. When a UK target or bidder is involved, the abnormal returns are almost twice as high as bids involving both a Continental European target and bidder. We also find strong evidence that cash offers trigger much larger share price reactions than all-equity offers or combined bids consisting of cash, equity and loan notes. A high market-to-book ratio of the target leads to a higher bid premium, but triggers a negative price reaction for the bidding firm. Also, our results suggest that bidding firms should not diversify by acquiring target firms that do not match their core

The purpose of this report is to contribute to the analysis of two questions. Should a merger control system take into account efficiency gains from horizontal mergers, and balance these gains against the anti-competitive effects of mergers? If so, how should a system be designed to account for efficiency gains? The report is based on a report to the European Commission. To help answer the two questions we start with an extensive review of the relevant economic research, including both theoretical and empirical studies of mergers and merger control. Next, we review the current legal practice in seven OECD jurisdictions. Finally, we propose a merger control system, emphasising the central role of informational limitations. Based on our conclusions from the empirical literature that efficiencies may need to be assessed on a case-by-case basis, we construct an information-economising twostage decision framework for evaluating mergers. In a first stage, notified mergers are assessed using routine tools with modest information requirements. Mergers that do not pass the first stage test are subject to further investigation, including an efficiency

This paper looks at the role of commercial banks and investment banks as financial advisors. Unlike some areas of investment banking, commercial banks have always been allowed to compete directly with traditional investment banks in this area. In their role as lenders and advisors, banks can be viewed as serving a certification function. However, banks acting as both lenders and advisors face a potential conflict of interest that may mitigate or offset any certification effect. Overall, it is found that, in their merger and acquisition advisory function, the certification effect of commercial banks dominates the conflict of interest effect and that the certification effect is particularly strong when the target’s own bank advises merger targets.

The world banking industry is undergoing a large-scale transformation. Banking systems and financial markets, both domestic and international, have been undergoing a series of profound changes. One of the main driving forces of these worldwide changes is the introduction of innovations in new information technologies. Against these trends, industrial structure in the banking industry and banking regulation have sometimes encouraged these trends and sometimes adapted to them. The aim of this paper is to present research findings and the main arguments in the literature on technological change and industrial organisation in the banking industry. The last section of the paper focuses on the role of information technologies in the banking industry. We present research findings of functional studies on IT investment in the banking industry. These studies have analysed the relationship between IT and corporate performance by examining specific IT applications in the context of corporate strategies.

Observable (ex-post) competition in the merger and acquisition (M&A) market seems to be very low. In this paper, we focus on the role of ex-ante competition and show that, when this is taken into account, the M&A market is more competitive than it seems. We first provide a theoretical analysis where we model takeovers as a two-stage process. The initial stage corresponds to a oneto-one negotiation with the target. If the negotiation fails, there is a second stage in which either a takeover battle among rivals occurs, or the target firm organizes a competitive auction. One of the main empirical predictions is that the higher the anticipated competition in the second stage, the higher the bid offered in the first stage. We then provide an empirical test of this prediction using a dataset of friendly deals for which, by construction, no ex-post competition is observable. We use the deal frequency in a given industry as a proxy for ex-ante competition, and we show that this variable is negatively related to the share of the value creation kept by the acquirer.

Observable (ex-post) competition in the merger and acquisition (M&A) market seems to be very low. In this paper, we focus on the role of ex-ante competition and show that, when this is taken into account, the M&A market is more competitive than it seems at first sight. We first provide a theoretical analysis where we model takeovers as a two-stage process. The initial stage corresponds to a one-to-one negotiation with the target. If the negotiation fails, there is a second stage in which either a takeover battle among rivals occurs, or the target firm organizes a competitive auction. One of the main empirical predictions is that the higher the anticipated competition in the second stage, the higher the bid offered in the first stage. We then provide an empirical test of this prediction using a dataset of friendly deals for which, by construction, no expost competition is observable. We use the deal frequency in a given industry as a proxy for exante competition, and we show that this variable is negatively related to the share of the value creation kept by the acquirer. This result is significant even taking account evidence of a decreasing investment opportunity. The main conclusion that we can draw from our analysis is that the M&A market is fairly competitive, and that anticipated competition allows target shareholders to receive a reasonable premium even in friendly deals.

Abstract not found

We consider a setting in which two potential buyers, one with a prior toehold and one without, compete in a takeover modelled as an ascending auction with participating costs. The toeholder is more aggressive during the takeover process because she is also a seller of her own shares. The non-toeholder anticipates this extra-aggressiveness of the toeholder. Thus, the non-toeholder is deterred from participating unless he has a high valuation for the target company. This leads to large inefficiency losses. For many configurations, expected target returns are first increasing then decreasing in the size of the toehold. JEL Classification: D44, G32, G34.

This study examines whether the “soft ” information present in merger and acquisition announcement press releases contains incrementally valuable news relative to traditional “hard ” data and analyst generated information. We use Diction, a textual-analysis program, to construct measures of optimism and synergy expectations for more that 1,400 mergers and acquisition announcements over the period 1995 to 2007. We find that our measure of synergy expectations is inversely related to acquirer announcement period returns and continues to be negatively related to long-term performance up to two years post merger. We find that managerial optimism is not valued by the market and is especially discounted when analysts hold contrary views regarding the attractiveness of a merger. Overall, we conclude that the soft data contained in M&A announcements provides meaningful information to investors.

business success and failure Helen Bewley, John Forth and Catherine RobinsonThe views expressed within this BIS Paper are those of the authors and should not be treated as Government policy. Contents Acknowledgements................................................................................... iv