Value Generation in Cross Border Mergers and Acquisitions

¶ … 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.