¶ … value differences between merging with other companies inside of Western Europe vs. investing in merging with companies in BRIC nations. Thus, mergers and acquisitions from within Western Europe were gathered. These were then compared to mergers of Western European companies with BRIC nations, including Brazil, Russia, India, and China. The data set chosen was to include a span of ten years, from 1999 to 2009. First and foremost, there were more mergers within this time frame than past 2009 based on the fact that the economic crisis in Europe had worsened to a degree that made mergers and acquisitions decline overall in the region. Moreover, after 2009, there were actually increasing trends of BRIC nations investing in acquiring Western European nations, and not the other way around because of declining financial conditions that were weakening the acquisition and leveraging power of many European companies. The period of 1999 to 2009 thus provided a more balanced survey. Companies from a variety of different industries were chosen to be included in the sample, which ended up with a total of ten mergers for each category that of within Western Europe and of Western European companies merging with companies from BRIC nations.
The first step was to define the independent and dependent variables. There were three independent variables used in the context of this research. These included the country type (Western European to Western European or Western European to BRIC Nation), transaction value, and the stock price 30 days prior to the merger announcement. Data to fill these three independent variable categories was gathered from a number of sources, including Dorai & Patolahti (2010), Institute of Mergers, Acquisitions, and Alliances (2015), and Reuters (2013). Then the design of this research chose stock price for the year of the merger and a year after as the two dependent variables that would be tested through the regression analysis. As a method for an event study, ADR stock listing prices were used to measure overall performance after the merger at two stages, which is a very widely used methodology for M&A research. According to a similar study conducted by Wang & Moini (2012) "it is designed to measure whether there is an abnormal stock price effect associated with an unanticipated event (M&A)." Stock prices for these two periods were collected using historical data from Yahoo! Finance and Google Finance. Thus, the research recorded monthly AR stock closing prices for 30 days before merger, 30 days after merger, year after merger, and August 2015. Next, it was important to identify any outliers, which were then removed. In this case, RFS Holdings BV was a clear outlier, as the stock price was well above the others in the sample set. In order to provide the clearest results, this was removed from the sample set.
Once the variables had been appropriately assigned and gathered, it was time to complete the actual regression tests. This study used regression, ANOVA, and residual testing practices in order to determine the level of statistical significance between the chosen variables. In order to determine whether M&A's are more valuable from internally within Western Europe or outside into the BRIC nations, regression analysis was used in this research. This tested the stock price after the merger with a number of variables in order to test for statistical significance to tell whether which scenario was most favorable in regards to later company performance. The performance was measured in this case by the stock prices after the merger. The regression would be able to point out any abnormal stock prices that were either above or below average returns, based on the test of the third variable, stock prices 30 days before the actual merger took place.
In the case of this research, this was conducted in two separate tests, one for stock prices 30 days after the initial merger and the second for a year after the merger. Regression will allow for a p-value comparison in order to determine whether the three variables were significant enough to show a correlation that would allow the research to make conclusions on which scenario seems the more valuable option for investment on behalf of Western European firms. These measures were chosen based on the findings and methods of previous research exploring similar context, including Dorai & Patolahti (2010) and Wang & Moini (2012).
Results
Data Set
Acquirer
Target
Type
Dummy Variable-Type
Value (USD)
Stock Price 30 Days Prior to Merger
Stock Price 30 Days After Merger
Stock Price One Year After Merger
Change in Stock Price After 1 Year
Stock Price in 2015
Industry
Feb-99
Vodafone AirTouch PLC
Mannesmann AG
Western European to Western European
0
202,800,000,000
23.20
23.90
36.89
13.69
37.3
Communications
Jan-00
Glaxo Wellcome PLC
SmithKline Beecham PLC
Western European to Western European
0
76,000,000,000
26.93
24.89
29.35
2.42
43.89
Pharmaceutical
Allianz AG
Dresdner Bank AG
Western European to Western European
0
19,700,000,000
-61.27
Finance
Feb-02
Credit Agricole
Credit Lyonnaise
Western European to Western European
0
16,900,000,000
10.94
18.85
8.92
-2.02
12.75
Finance
Feb-03
Sanofi-Synthelabo SA
Aventis SA
Western European to Western European
0
60,200,000,000
23.01
30.31
22.43
-0.58
53.26
Pharmaceutical
Royal Dutch Petroleum
Shell Transport & Trading
Western European to Western European
0
74,600,000,000
51.63
54.82
39.72
-11.91
57.15
Energy
Feb-06
Gaz de France
Suez SA
Western European to Western European
0
76,900,000,000
26.01
29.84
33.31
7.30
17.56
Energy
Oct-07
RFS Holdings BV
ABN-AMRO Holding NV
Western European to Western European
0
98,200,000,000
5,122.00
3,929.00
-4,999.62
10.52
Finance
Novartis AG
Alcon Inc.
Western European to Western European
0
38,300,000,000
49.05
50.60
34.74
-14.31
Pharmaceutical
Feb-09
Volkswagen AG
Porsche Holding Salzburg
Western European to Western European
0
4,600,000,000
63.53
-124.47
Automotive
Jan-99
International Trade & Exhibitions (ITE)
Comtek Expositions
Western European to BRIC
1
4,980,000
27.00
35.00
87.50
60.50
Trade
Jun-00
Gallaher Group
Liggett Ducat
Western European to BRIC
1
25,000,000,000
5.12
4.98
4.79
-0.33
0
Tobacco
BG Group
Gas India Limited
Western European to BRIC
1
247,000,000
26.50
Energy
Feb-02
Corus
Companhia Siderurgica Nacional
Western European to BRIC
1
2,100,000,000
67.51
72.13
54.53
Energy
Sygen
Aquatec
Western European to BRIC
1
8,110,000
5.75
5.03
4.63
-1.12
0
Pharmaceutical
Apr-04
Kewill
TradePoint Systems
Western European to BRIC
1
6,620,000
68.50
69.12
95.00
26.50
Technology
Apr-05
Kingfisher PLC
OBI Asia Holding Ltd.
Western European to BRIC
1
14,300,000,000
-72.50
37.3
Retail
Feb-06
Vodafone Group
Hutchison Essar
Western European to BRIC
1
12,700,000,000
29.22
21.00
33.67
4.45
37.3
Communications
Jul-07
Rexam
Rostar
Western European to BRIC
1
149,000,000
-108.75
Manufacturing
Fortune Oil
China Gas Holdings
Western European to BRIC
1
16,430,000
7.00
6.43
5.78
-1.22
0
Energy
Apr-09
Pearson
Global Education and Technology Group
Western European to BRIC
1
97,400,000
9.92
10.11
13.50
3.58
17.94
Media
Results for Stock Price 30 Days After Merger
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.991802056
R Square
0.983671319
Adjusted R. Square
0.980609691
Standard Error
21.38072619
Observations
20
ANOVA
df
SS
MS
F
Significance F
Regression
3
440619.6
146873.1899
1.67487E-14
Residual
16
Total
19
447933.7
Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
-11.90973517
11.34438
-1.049836057
0.309393
-35.95873822
12.13927
-35.95873822
12.13926788
X Variable 1 (Country Type)
10.61992363
12.11578
0.87653638
0.393709
-15.06438651
36.30423
-15.06438651
36.30423377
X Variable 2 (Transaction Value)
9.70128E-11
1.28E-10
0.757230269
0.459919
-1.7458E-10
3.69E-10
-1.7458E-10
3.68605E-10
X Variable 3 (Stock Price)
0.999984413
0.033369
29.96729494
1.74E-15
0.929244887
1.070724
0.929244887
1.070723939
Overall, the tests show there is a statistically significant correlation between the variables. With a P. value of greater than 0.05 in all variable conditions, it is clear that a number of factors contribute to overall value generation, including not only the geographic location of the target company, but also the value of the transaction. In regards to the country of the target company, investing in BRIC companies does show to provide greater stock value within the first 30 days of investment.
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