Impact of International Mergers and Acquisitions on Shareholder's Wealth European Perspective

Introduction The decade of 1990 was the decade of market globalization. The integration of the European Union (EU) in 1992 united economically more than fifteen different member countries. In addition, the collapse first of the Berlin Wall in November 1989 followed by the breaking up of the Soviet Union and Tsechoslovakia signaled a new era for Eastern Europe. Therefore, this decade has begun with the formation of a new Europe, where both the East and the West join forces. The United Europe had in 1992 about 520 million people and nearly U.S.$ 5 trillion gross national product as compared with U.S.$ 4 trillion for the U.S.A. and U.S. $ 2 trillion for Japan. According to the European Commission, the number of major mergers involving the European Community - based companies (to build pan European manufacturing and develop marketing strength) nearly tripled between fiscal years 1983-1987 and it accelerated further as companies were seeking the large scale they needed to survive and prosper in the 1990s. Industries that are ripe for merger and acquisition activity are: banking and insurance, high technology, distribution industries and basic manufacturing industries, which are increasingly becoming international. Currently, there are many companies in Europe, with undervalued assets and relatively low share prices, which makes them attractive targets for takeovers. On the other hand, European companies are also looking to the U.S.A for possible acquisitions. Yet, the EU integration has already motivated many US and Japanese companies to seek entry into the European countries, not only to sell their products, but also to seek the acquisition of real and financial assets in the European countries. [Lyroudi, Lazaridis and Noulas (1998)]. ' In recognition of the fact that most empirical studies which examine the valuation effects of international investment have assessed the U.S. multinational firms, this study focuses on Western European and Japanese companies to examine the wealth effects of the acquirers which were involved in international acquisition activities around the beginning of this decade and to determine the factors that led to the observed specific market reaction. European Mergers and Acquisitions: Trends and Barriers The increasing number of mergers and acquisitions (M&A) in Europe takes place within single Europeancountries, between European countries and between European and non-European corporations. In particular, Japanese and American companies have invested in European companies in order to take advantage of the expected growth of the integrated market, EU-based companies participated in takeovers in order to improve access to customers of other EU countries while the liberalization of the capital market and the globalization of the competition have respectively facilitated the financing of such actions and triggered takeovers within single European countries. According to relative reports of the EU Commission, the expansion of the acquisitions involving big EU companies exhibits an annual rate of growth of nearly 38 per cent. In addition, it should be useful to mention that nearly 75 per cent of the total M&A in Europe involves firms in the manufacturing sector, while 14 per cent of these company concentrations involves banking firms. Yet, if we distribute the total number of these M&A with respect to their nations, EU and international nature, it will be revealed that 40 per cent of these deals correspond to the first category, 38 per cent represent the second category and only 28 per cent to the last category. However, the growth rate for international mergers and acquisitions (53 per cent) is much higher to that corresponding to the national M&A whereas the higher growth rate, 57 per cent, is exhibited for the EU-M&As. Barriers to Takeovers in the EEC Countries Turning to the reported barriers to takeovers in the EEC countries during the period under consideration, (see Exhibit 1), we may classify them in three groups: regulatory and legislative barriers, . …