Mergers and Acquisitions: Current Issues
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Mergers and Acquisitions Current Issues Edited by Greg N. Gregoriou and Karyn L. Neuhauser 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page i MERGERS AND ACQUISITIONS 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page ii Also edited by Greg N. Gregoriou ADVANCES IN RISK MANAGEMENT ASSET ALLOCATION AND INTERNATIONAL INVESTMENTS DIVERSIFICATION AND PORTFOLIO MANAGEMENT OF MUTUAL FUNDS PERFORMANCE OF MUTUAL FUNDS 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page iii Mergers and Acquisitions Current Issues Edited by GREG N. GREGORIOU and KARYN L. NEUHAUSER 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page iv Selection and editorial matter © Greg N. Gregoriou and Karyn L. Neuhauser 2007 Individual chapters © contributors 2007 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978-0230-55379-8 ISBN-10: 0-230-55379-6 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Mergers and acquisitions : current issues / edited by Greg N. Gregoriou and Karyn L. Neuhauser. p. cm. Includes index. ISBN 0-230-55379-6 (alk. paper) 1. Consolidation and merger of corporations. I. Gregoriou, Greg N., 1956– II. Neuhauser, Karyn L. HD2746. 5. M4365 2007 338.8’3—dc22 2007021799 10987654321 16 15 14 13 12 11 10 09 08 07 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page v To my mother Evangelia and in loving memory of my father Nicholas (GNG) To my mother, Helen Lieck, and in remembrance of my father, Arthur Louis Lieck, who together taught me what was important in life (KLN) This page intentionally left blank 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page vii Contents Acknowledgments xi Notes on the Contributors xiii Introduction xxi 1 Mergers and Acquisitions: A Global View 1 Karyn L. Neuhauser 2 What Drives Acquisitions? A Market-Manager Rationality Framework 5 Antonios Antoniou and Huainan Zhao 2.1 Introduction 5 2.2 Hypothesis development 7 2.3 Data and descriptive statistics 8 2.4 Methodology 10 2.5 Empirical results 11 2.6 Conclusion 24 3 Misadventure and the Form of Payment in Corporate Acquisitions 27 Tyrone M. Carlin, Guy Ford and Nigel Finch 3.1 Introduction 27 3.2 Factors influencing the form of consideration in acquisitions 31 3.3 A price too far? The acquisition of Howard Smith Ltd by Wesfarmers Ltd 33 3.4 Financial analysis 35 vii 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page viii viii CONTENTS 3.5 Assessment of the transaction 38 3.6 Conclusion 40 4 An Essay on the History of a Merger: The Case of the National Bank of Canada 42 Raymond Théoret and François-Éric Racicot 4.1 Introduction 42 4.2 The structures of the two merged banks 43 4.3 The new merged bank 50 4.4 A low P/E ratio for the stock of national bank 53 4.5 Conclusion 54 5 Corporate Diversification: The Costs and Benefits of Synergy 56 Felipe Balmaceda 5.1 Introduction 56 5.2 Related literature 58 5.3 The model 60 5.4 The analysis 64 5.5 Robustness 67 5.6 Conclusion 73 6 The Influence of M&As on Firm Value: The Turkish Experience 83 M. Nihat Solakog˘lu and Mehmet Orhan 6.1 Introduction 83 6.2 Data and methodology 85 6.3 Discussion of results 87 6.4 Conclusion 93 7 Price Volatility in Stocks Subject to Tender Offers 96 Elaine Hutson 7.1 Introduction 96 7.2 Previous research and theoretical background 97 7.3 The econometric analysis: market effect and volatility 101 7.4 Data and preliminary results 102 7.5 Econometric results 106 7.6 Trading volumes 110 7.7 Conclusion 114 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page ix CONTENTS ix 8 Merger Arbitrage: An Introduction 118 Greg N. Gregoriou and François-Serge Lhabitant 8.1 Introduction 118 8.2 Merger arbitrage: the strategy 119 8.3 Key sources of merger arbitrage risk 128 8.4 Historical performance 132 8.5 Conclusion 136 9 The Impact of Cross-Border Mergers and Acquisitions on Financial Analysts’ Forecasts: Evidence from the Canadian Stock Market 139 Alain Coën, Aurélie Desfleurs and Claude Francoeur 9.1 Introduction 139 9.2 Conceptual framework 141 9.3 Measures of financial analysts’ forecast errors and data 142 9.4 Empirical results and analysis 145 9.5 Conclusion 151 10 The Economic Analysis of US Antitrust Merger Law 155 Germán Coloma 10.1 Introduction 155 10.2 Theoretical literature 156 10.3 Statute and case law 160 10.4 Empirical studies 163 10.5 Conclusion 165 11 Ethical Issues in Mergers and Acquisitions 168 Robert W. McGee 11.1 Introduction 168 11.2 Ethical approaches 168 11.3 Review of the literature 173 11.4 Conclusion 175 12 The Use of Equity Swaps in Mergers 178 Paul U. Ali 12.1 Introduction 178 12.2 Equity swaps 179 12.3 Hedging of swap exposure 180 12.4 “Fear and loathing” in takeover battles 180 12.5 Conclusion 185 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page x x CONTENTS 13 Banking Performance in Domestic and Cross-Border Acquisitions 188 Sergio Sanfilippo Azofra, Belén Díaz Díaz, Myriam García Olalla and Carlos López Gutiérrez 13.1 Introduction 188 13.2 Cross-border M&As: a literature review 190 13.3 Empirical analysis: definition of sample, variables and methodology 192 13.4 Results from empirical analysis 199 13.5 Conclusions 208 14 Mergers between European Energy Firms: National Champions and Markets 213 Francesc Trillas 14.1 Introduction 213 14.2 The issues at stake 214 14.3 The behavior of target firms 217 14.4 Expanding firms 221 14.5 Competition policy and national champions 228 14.6 Conclusion 231 15 A Deal Too Far: The Case of the Killer Acquisition 234 Tyrone M. Carlin, Nigel Finch and Guy Ford 15.1 Introduction 234 15.2 Overview of the focal company 236 15.3 A string of acquisitions 239 15.4 Exploring a killer deal 241 15.5 Conclusion 244 16 Trends in Chinese M&A: A Look at Lenovo’s Acquisition of IBM PC 249 Margaret Wang 16.1 Introduction 249 16.2 History of Lenovo 249 16.3 Lenovo’s acquisition of IBM PC 250 16.4 After the merger 253 16.5 Conclusion 255 Index 259 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page xi Acknowledgments We would like to thank Stephen Rutt, Alexandra Dawe and Lisa von Fircks at Palgrave Macmillan for guiding us through the process. We also thank Keith Povey Editorial Services and his staff for the excellent work in editing this manuscript, and thanks also to a handful of anonymous referees who assisted in the selection of articles for this book. G N G K L N xi This page intentionally left blank 9780230_553798_01_prexxiv.qxp 9/10/2007 3:49 PM Page xiii Notes on the Contributors The Editors Greg N. Gregoriou is Professor of Finance in the School of Business and Economics at State University of New York (Plattsburgh), USA. He obtained his joint PhD in Finance from the University of Quebec at Montreal, which pools the resources, with Montreal’s three major universities (McGill University, Concordia University and Hautes-Etudes (Commerciales). He is co-editor of the Journal of Derivatives and Hedge Funds and an editorial board member of the Journal of Wealth Management and the Journal of Risk, Management in Financial Institutions. He has written over fifty articles on hedge funds and managed futures in various peer-reviewed publications, including the Journal of Portfolio Management, European Journal of Operational Research, Annals of Operations Research, Journal of Banking and Finance, Journal of Futures Markets, Journal of Derivatives Accounting, European Journal of Finance and Journal of Asset Management. He has authored one book with Professor Joe Zhu and edited nineteen books with Elsevier-Butterworth-Heinemann, John Wiley & Sons, Palgrave Macmillan and Risk Books. Karyn L. Neuhauser is an Assistant Professor of Finance at the State University of New York (Plattsburgh), USA. She earned her doctorate in Finance from Louisiana State University and has published articles in the Journal of Real Estate Finance and Economics and the Journal of Financial Research. She recently edited a special issue of the International Journal of Managerial Finance.