Does which country a seller or bidder firm operates in affect mergers and acquisitions?
- Background of differences
- Investor protection
- The legal system
- Market-centered or bank-centered corporate systems
- Shareholder concentration
- UK/US firm acquiring a continental European firm
- Continental European firm acquiring a UK/US firm
Does which country a seller or bidder firm operates in have such a big impact on mergers and acquisitions? My aim is for this paper to answer that question by analysing the differences between the UK/US system of corporate governance and the continental European system of corporate governance.
I have identified several key aspects which I believe are fundamental to the understanding of why the UK/US and continental European system of corporate governance are different.
The argument is structured as follows:
Section 2 is a brief discussion of the aspects that differentiate the two different systems of corporate governance explored in this paper.
Section 3 develops upon Section 2 by exploring the aspects further, in relation to an example of a UK/US firm acquiring a continental European firm.
Section 4 does the same as Section 3, but for the example of a continental European firm acquiring a UK/US firm.
Section 5 concludes the argument.
[...] Rossi and Volpin make the following statement, based on their analysis: acquirers typically come from countries with better accounting standards and stronger shareholder protection than the targets' countries.? It is important to recognise that, because the continental European firm has a higher ownership concentration, a hostile takeover situation is much less likely: after all, if one person does not want to sell their majority share in a company, there is no way that the company can be taken over in a hostile bid, as Rossi and Volpin state: ?Hostile takeovers require that control be contestable, a feature that is less common in countries with poorer investor protection? Another factor to look at is how the takeover premium is affected by the corporate governance of the bidder and target countries. [...]
[...] Looking at the means of payment in this scenario, Rossi and Volpin state that: ?Cross-border deals might be more often paid in cash because shareholders dislike receiving foreign stocks as compensation? However, Rossi and Volpin go on to make the point that the shareholders in a target company are likely to accept foreign stocks if the acquirer firm's country has greater investor protection than the target's country. This is presumably because the target shareholders do not want to receive foreign stocks with a high risk of being expropriated. [...]