Mergers & Acquisitions and value creation for the shareholders

Résumé du document

2008 was hit by one of the worst financial crisis in history and also by the record number of cancelled Mergers & Acquisitions. According to Dealogic, the financial data provider, the whole value of the transactions for 2008 comes to 3.280 billions of dollars which represents a decrease of 29% compared to the previous year. In 2008, there were 1.309 transactions representing 911 billions of dollars which were not completed, whereas in the previous year only 870 transactions failed. Among the failures of 2008, one of the most eventful transaction is the offer of 147 billions of dollars of BHP Billiton over Rio Tinto. The worldwide mine leader offered 3,4 of its own shares for 1 share of its Anglo-Australian main competitor. After having rejected the first offer, Rio Tinto finally refused to merge with BHP Billiton even though BHP had increased its previous offer. For the president of the target company, Paul Skinner, the offer clearly undervalued Rio Tinto and the board unanimously rejected this offer. This failure clearly symbolises one of the biggest backfires in the history of M&A as it is the largest-ever withdrawn deal. For William Vereker, deputy director of the investment bank Nomura, 2009 will suffer from a bad M&A outlook. "The combination of falling earnings, the absence of credit, lack of confidence and ongoing market volatility will deter activity," he said. 2008 and the following years will probably represent a trough in the history of the waves of Mergers & Acquisitions. Since the end of the 19th century five waves of M&A have been counted. They all had different origins, goals and targets.

Extraits

[...] This failure clearly symbolizes one of the big misfire in the history of M&A as it is the largest-ever withdrawn deal. For William Vereker, deputy director of the investment bank Nomura will suffer from a bad M&A outlook. combination of falling earnings, the absence of credit, lack of confidence and ongoing market volatility will deter activity,”[1] he said and the following years will probably represent a trough in the history of the waves of Mergers & Acquisitions. Since the end of the 19th century five waves of M&A have been counted. [...]

[...] Concerning the relevance of the intercepts, their T values must be higher than the critical value of It is only the case for three of the fifteen companies of the sample. For the other companies, ( is lower than the critical value which means that it is an accidental observation. On the whole, my model is working for the β coefficient but the ( coefficient has no impact on this model. However, the event study is still going to be carried out, but I will take this irrelevance into account for the conclusions of the event study Abnormal returns results Thanks to the results found above and the market returns of the year 2007, I was able to get the expected returns of every company during the event window. [...]

[...] The criterions which interested me were the two first. I used this search engine to obtain a first draft of the M&A list which involved French companies and which were announced in 2007. Surprisingly, the number of results found was very huge: 2,085 French companies were involved in a deal announced in Refining the results As the number of results found earlier was too huge, new criterion had to be found in order to sort the data out. The first criteria I chose was the deal status. [...]

[...] The average Beta of the sample is The graph below shows the beta coefficient of the sample: It is interesting to note that two companies (Docks Lyonnais SA and LVMH) have a Beta very close to one. A Beta equals to one means that the company returns are perfectly correlated with the market returns Relevance of the serial correlation At this stage the objective is to check whether or not the values found above are significant. The first step is to calculate the standard error of the intercept and of the slopes thanks to the standard error. From these results we are able to get the T-value of each coefficient. [...]

[...] For those reasons, in this study the share prices won't be adjusted. But to compensate those eventual events the event window will be narrowed. Therefore the abnormal return is going to be calculated as following: With: : Abnormal return : Actual return : Expected return calculated according to the Market Return model 3.4 Step Cumulative abnormal returns and statistical significance The task of this step is to calculate the cumulative abnormal returns, which is the sum of the abnormal return for every asset. [...]