Cross-Border Acquisitions and Shareholder Wealth - Evidence from Spain

Diplomarbeit von Martin Renze-Westendorf

Abstract:

Over the last decade product and factor markets have continued to become more integrated, new markets have emerged and the globalization has become an important strategic issue for companies. As a result, international investment opportunities have in-creased while regulatory restrictions on capital markets have been eased and the market for corporate control has become more integrated.

Consequently, the international acquisition activity has increased in both absolute and relative terms over the last decades leading to a significant rise of the proportion of international to domestic merger activity, particularly at the end of the 1990s. As more and more companies consider international diversification as a strategic option for their further growth, the question arises which valuation consequences accompany cross-border acquisitions.

Furthermore, it is to be analyzed whether these consequences differ systematically from domestic acquisitions and what could be possible value drivers in these cases. Although mergers and acquisitions in general have received wide attention in academic research, studies concerning the wealth effects of cross-border acquisitions are limited. Moreover, existing empirical evidence primarily stems from the US and UK capital markets neglecting generally the European perspective.

Spain, Europe’s fifth largest economy, has seen a series of considerable cross-border acquisitions in the last decade culminating in the merger of Santander with Abbey National in 2004 for over USD 15bn, making it the tenth largest transaction worldwide in 2004.3 The Spanish M&A market boom of the 1990s was initially driven by a consolidation process in the financial services, utilities and telecoms sectors which mostly were formerly state-owned. As a consequence of the increasing market concentration Spanish companies expanded internationally, creating some of the biggest corporations world-wide and becoming South America’s largest foreign investor.

These recent developments and the high acquisition activity from Spain into other countries make it worthwhile to shed light on the valuation consequences and their possible explanations by an empirical analysis. Considering the aforementioned, it is the aim of this thesis to answer the question as to whether the foreign acquisition wave of the last decade in Spain really created value and therewith supports the strategic decisions of the management.

The analysis should reveal insights about the „cross-border effect” in international acquisitions from a Spanish perspective including country-specific factors which could have influenced the empirical results. The findings build a fertile basis for further cross-country analysis and should increase the understanding of cross-border acquisitions in European capital markets.

The rest of the thesis is structured as follows: first, basic terms will be clarified in order to build the basis for a common understanding which will be necessary throughout the thesis.

Second, a literature review of theoretical concepts and prior empirical evidence will be given.

Having set out all relevant theoretical concepts and explanations, a comparison with empirical findings will verify whether theoretical considerations are really supported by empirical evidence. Therefore, an outline of relevant value drivers which were identified empirically in prior academic research will round up this section.

Third, the reader will be introduced into the Spanish takeover market starting with a brief description of the Spanish economy and its integration into the European Union.

Next, the characteristics and development of the Spanish takeover market will be presented before a review of existing empirical research in the field of cross-border acquisitions in Spain will conclude the section.

Fourth, the thesis will present an event study investigating cross-border acquisitions in Spain from 1990 till 2004. Before beginning with the empirical analysis, the author will derive hypotheses based on the prior illustrated theoretical considerations in order to test these on the selected sample. Having described the characteristics of the data sample and having explained the event study methodology the results with regard to the different hypotheses will be presented and interpreted. A discussion of possible limitations and a conclusion of the results will round up the event study presentation.

Fifth, the thesis will conclude the new results acquired in the event study presenting possible further fields of research that should be covered in the future.

Table of Contents: