Shareholder Returns In Domestic and International Acquisitions: Evidence from the Fifth Merger Wave

Abstract We examine the magnitude and determinants of acquiring shareholder returns using a sample of domestic and foreign acquisitions of UK firms during the period 1990-1998. We also assess the magnitude of combined wealth gains and their division using a paired sample of 219 targets and their acquirers. Targets of foreign bids have a lower PE ratio, have experienced lower sales growth and lower profitability growth but have greater cash reserves and higher R&D intensity vis a vis targets of domestic bids. Foreign acquirers are larger and have a higher level of intangible assets and R&D expenditure vis-à-vis UK bidders. Both targets of foreign bids and their acquirers differ to their domestic counterparts in that they are from more high tech industries. UK acquirers gain albeit insignificantly upon the takeover announcement being made in contrast to the small losses experienced by their foreign counterparts with US acquirers deem to fare worst. Combined wealth gains whilst on average are small, are larger when acquirers are from Continental Europe and when acquirers do not have a previous presence in the UK market. The determinants of acquirers value changes are found to include a mix of both target firms financial characteristics as well as bid features. Finally, a great volume of merger activity is witnessed in the 1995-1998 era compared to the 1990-94 period and we control for this in our analyses