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 This failure clearly symbolises one of the biggest backfires in the history of M&A as it is the largest-ever withdrawn deal.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.
[...] A merger refers to, “any takeover of one company by another, when the businesses of each company are brought together”. On the contrary, an acquisition is, “the takeover of the ownership and management control of one company by another”. The acquisition can be done in two different ways, either by acquiring a controlling interest in the company's shares or by purchasing the business operation and its assets. The aim of this chapter is to analyze and assess the theories concerning the M&A and the value creation for shareholders. Two substantial concepts come up from all the literature. [...]
[...] This means that the prices take all the past information into consideration. Technical and market analysis should therefore not yield abnormal returns on a consistent basis. The second form is the Semi Strong Form of Efficiency. This signifies that on this market the prices take into account all the publicly available information. The last form is the Strong Form of Efficiency, in which market prices discount the privately held information, and excess profit cannot be made from privileged information. As explained in the literature review, the semi- strong form appears to be the closer to reality. [...]
[...] Yet this increase remains small, and proves that M&A don't create much value for the shareholders of the bidding companies. Chapter six: Discussion & Interpretation The previous chapter leads to the conclusion that M&A don't create much value for shareholders of the bidding companies in the short term. In this chapter the methodology and the results found will be assessed, and the findings will be interpreted and balanced with a literature review Assessing the numerical study The study carried out can be biased by several factors. [...]
[...] The second one introduced the concept of value creation for shareholders and the methods to measure it. The underlying theory in this concept was the market efficiency theory since it states that the company share price perfectly reflects the value that the company has created or destructed Synergy effect The synergy effects theory explains why merging creates value for companies and therefore for the shareholders. It states that two companies are worth more together, than the sum of their two distinct values. [...]
[...] This issue also explains the fact that bidding companies have quite low abnormal returns, since they do not get the effects of synergy Measuring the value creation Literature reviews show that there are several ways to measure the value creation for the shareholders. This study only took into account the stock- exchange method which is used to measure abnormal returns. Yet, there are accounting methods which also enable us to measure the value creation for shareholders. The main drawback of these methods is that they don't take into account the perception of the market. [...]
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