How do takeovers in the United Kingdom split value gains between domestic deals' parties?
Purpose – This paper aims to address the question: What is the distribution of value (in pounds) created in a sample of domestic takeovers in the United Kingdom from 2013 to 2020 among acquirer and target stockholders? Design/methodology/approach – The author employs a traditional event study method...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2024-03-01
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| Series: | Journal of Business and Socio-Economic Development |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JBSED-05-2023-0035/full/pdf |
| _version_ | 1797257543530053632 |
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| author | Tarcisio da Graca |
| author_facet | Tarcisio da Graca |
| author_sort | Tarcisio da Graca |
| collection | DOAJ |
| description | Purpose – This paper aims to address the question: What is the distribution of value (in pounds) created in a sample of domestic takeovers in the United Kingdom from 2013 to 2020 among acquirer and target stockholders? Design/methodology/approach – The author employs a traditional event study methodology to calculate the percentage excess returns of companies on the announcement date. These returns are then converted into pound-denominated excess returns using the companies' market capitalizations. This allows the author to estimate the synergies of the mergers and acquisitions (M&As) and how they are allocated between acquirers and targets. This innovative transformation from percentage to pound excess returns establishes a new ratio methodology for addressing the paper's objective. Findings – This paper reveals that in UK takeovers, 40 percent of the synergies in pounds are allocated to the stockholders of acquiring companies, while 60 percent go to the stockholders of target companies. In other words, acquirers retain a significant portion—more than half—of the synergies generated in these domestic deals. This original finding is statistically significant at the one percent level and strongly contradicts the hypothesis that acquirers, at best, merely break even. Originality/value – The evidence that UK takeovers distribute value gains nearly equally between domestic deal parties challenges the enduring conventional insight in the M&A literature. This conventional wisdom suggests that the value created by business combinations is entirely distributed to target company stockholders. Consequently, this reexamination may have broader implications, offering an alternative perspective on the motives behind business combinations. This perspective differs from the “managerial hubris hypothesis,” which aligns with the prevailing conventional insight but receives limited support in the original finding reported here. |
| first_indexed | 2024-04-24T22:39:19Z |
| format | Article |
| id | doaj.art-94559e5dc12942deabbdd0f734daba18 |
| institution | Directory Open Access Journal |
| issn | 2635-1374 2635-1692 |
| language | English |
| last_indexed | 2024-04-24T22:39:19Z |
| publishDate | 2024-03-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of Business and Socio-Economic Development |
| spelling | doaj.art-94559e5dc12942deabbdd0f734daba182024-03-19T06:10:30ZengEmerald PublishingJournal of Business and Socio-Economic Development2635-13742635-16922024-03-01429711010.1108/JBSED-05-2023-0035How do takeovers in the United Kingdom split value gains between domestic deals' parties?Tarcisio da Graca0Université du Québec en Outaouais, Gatineau, CanadaPurpose – This paper aims to address the question: What is the distribution of value (in pounds) created in a sample of domestic takeovers in the United Kingdom from 2013 to 2020 among acquirer and target stockholders? Design/methodology/approach – The author employs a traditional event study methodology to calculate the percentage excess returns of companies on the announcement date. These returns are then converted into pound-denominated excess returns using the companies' market capitalizations. This allows the author to estimate the synergies of the mergers and acquisitions (M&As) and how they are allocated between acquirers and targets. This innovative transformation from percentage to pound excess returns establishes a new ratio methodology for addressing the paper's objective. Findings – This paper reveals that in UK takeovers, 40 percent of the synergies in pounds are allocated to the stockholders of acquiring companies, while 60 percent go to the stockholders of target companies. In other words, acquirers retain a significant portion—more than half—of the synergies generated in these domestic deals. This original finding is statistically significant at the one percent level and strongly contradicts the hypothesis that acquirers, at best, merely break even. Originality/value – The evidence that UK takeovers distribute value gains nearly equally between domestic deal parties challenges the enduring conventional insight in the M&A literature. This conventional wisdom suggests that the value created by business combinations is entirely distributed to target company stockholders. Consequently, this reexamination may have broader implications, offering an alternative perspective on the motives behind business combinations. This perspective differs from the “managerial hubris hypothesis,” which aligns with the prevailing conventional insight but receives limited support in the original finding reported here.https://www.emerald.com/insight/content/doi/10.1108/JBSED-05-2023-0035/full/pdfMergers and acquisitionsSynergiesExcess returns |
| spellingShingle | Tarcisio da Graca How do takeovers in the United Kingdom split value gains between domestic deals' parties? Journal of Business and Socio-Economic Development Mergers and acquisitions Synergies Excess returns |
| title | How do takeovers in the United Kingdom split value gains between domestic deals' parties? |
| title_full | How do takeovers in the United Kingdom split value gains between domestic deals' parties? |
| title_fullStr | How do takeovers in the United Kingdom split value gains between domestic deals' parties? |
| title_full_unstemmed | How do takeovers in the United Kingdom split value gains between domestic deals' parties? |
| title_short | How do takeovers in the United Kingdom split value gains between domestic deals' parties? |
| title_sort | how do takeovers in the united kingdom split value gains between domestic deals parties |
| topic | Mergers and acquisitions Synergies Excess returns |
| url | https://www.emerald.com/insight/content/doi/10.1108/JBSED-05-2023-0035/full/pdf |
| work_keys_str_mv | AT tarcisiodagraca howdotakeoversintheunitedkingdomsplitvaluegainsbetweendomesticdealsparties |