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In Chapter 1 the history of mergers and acquisition waves in the U.S. is sketched and well-documented empirical regularities are summarized. The analysis is then extended to encompass contemporary trends and the landscape of current mergers and acquisitions, particularly the effects of economic globalization and private equity funding. In Chapter 2 the authors answer the question of what driving force of acquisitions is of crucial important for us to understand mergers activities. Following the emergency of the market timing theory of mergers (Shleifer and Vishny, 2003), recent studies which focus on overvalued bidders have found evidence in supportive of the theory. Equally important, however, undervalued targets form the other part of the misvaluation theory which has unfortunately been relatively neglected. This paper therefore examines the undervaluation part of the story and provides supportive evidence that stock market misvaluation and the market timing ability of manager is the likely driving forces behind merger activities. Chapter 3 examines an often overlooked feature of control premiums in the context of fixed exchange ratio scrip mergers ? the impact of a rise in the acquiring firm?s share price over the duration of the offer period. While this has traditionally been seen as an affirmation of deal value by capital markets, in this chapter it is argued that a better analysis may be that such transactions destroy value for acquiring shareholders. In Chapter 4 we use an operations research technique called Data Envelopment Analysis to investigate the efficiency between pre and post mergers in the insurance industry. The results indicate that target firms tend to function in an increasing return to scale fashion. but this does not apply to acquirers. We also find that the acquirer?s efficiency usually is reduced considerably after the merger. Chapter 5 the author provides an explanation, based on agency conflicts, for why some firms pursue value-decreasing diversification, while others pursue value increasing diversification. There is a vast empirical literature suggesting that diversification is value maximizing for some firms and value destroying for others. In Chapter 6 the increasing role of mergers and acquisitions for the Turkish economy is examined. The authors investigate the short-term impact of M&As on firm value. Consistent with the earlier work, we find that target firms realize most of the gains in the short-run. In addition, the increasing trend observed?in the cumulative average abnormal return may indicate the existence of information spillovers before the announcement date. We also show that probability of observing a positive abnormal return is positively related to existence of international transactions and family ownership at the firm level. Chapter 7 demonstrates that there is a large body of evidence demonstrating that target company shareholders earn substantial excess returns around takeover announcements. There has been less academic interest in the second moment of target returns. Are high bid period returns for target firms associated with higher price volatility? We show that conditional volatility actually falls a during the bid period, and with some important exceptions, volume tends to follow. The decline in volatility is larger for targets of cash bids relative to non-cash bids, for targets of successful bids versus failed bids, and for friendly versus hostile bids. This is consistent with our suggestion that the reduction in volatility is due to convergence of trader opinion regarding the value of the target stock, because the greater the certainty about the takeover?s outcome, the greater the drop-off in volatility. While trading volume falls in the successful, friendly and cash sub-samples, it remains unchanged or increases for targets of failed, hostile and non-cash bids. Chapter 8 examines the merger arbitrage strategy. The chapter elucidates how merger arbitrageurs function when a merger or a takeover is revealed, along with the positions they assume as well as hedging is performed by concurrently short selling the acquiring firm's stock. The chapter also addresses the various risks encountered by merger arbitrageurs in order to and summarizes the returns since the early 1990s. Chapter 9 investigates financial analysts? performance before and after cross-border mergers and acquisitions transactions on the Canadian stock markets over the 1990-2004 period. We focus on the consequences of M&A on the accuracy and the quality of earnings forecasts, using financial analysts? forecast consensus provided by IBES data base. Our results highlight an increase of financial analysts? forecast errors after the mergers. The pre-merger level of accuracy is reached only two years after the event. Besides, we shed light on the over-optimism shown by financial analysts in their forecasts for US targets. Chapter 10 is about the economic literature that analyzes mergers and merger law from an antitrust perspective. Its focus is on US antitrust law, although some of the reviewed literature can also be applied to other countries. The article has three main sections. In the first one we review the most important theoretical papers, putting emphasis in the basic trade-off between cost reduction and market power that many mergers generate. In the second one, we analyze the development of US antitrust merger law and its increasing link with economic theory, which becomes especially clear in the passing of the Hart-Scott-Rodino Act (1976) and the publication of the DOJ-FTC Merger Guidelines (1992). Thirdly, we include a section about the basic empirical methods used in economics to analyze the antitrust effects of mergers, and review several important case studies that have used those methods. The basic conclusions are summarized in the last section. Chapter 11 analyzes the topic of acquisitions and mergers from the perspectives of utilitarian ethics and rights theory and discusses the ethical issues involving hostile takeovers and the attempts that have been made to prevent them. Most mergers meet the utilitarian ethics test. Preventing or increasing the cost of mergers violates property and contract rights. These issues have not been discussed much in the literature. This chapter attempts to partially fill that gap. Chapter 12 discusses equity swaps are routinely used by professional investors to synthesize equity investments and create equity-linked exposure for their portfolios. Now a new use for these investment instruments has emerged: the accumulation of pre-bid stakes in target companies. This Chapter examines the application of equity swaps to takeover contests. Chapter 13 analyses the profitability obtained by the acquirer in domestic and cross-border acquisitions. The analysis is carried out on a sample of European banks during the period 1992-2000. The results show that domestic acquisitions improve acquirers? performance, especially in the long term, while cross-border operations do not have a significant effect on acquirers? performance. Chapter 14 examines European Union electricity and gas directives, aimed at the creation of an internal energy market,? triggered a wave of mergers and acquisitions. National and European authorities took a somewhat incoherent stance vis-?-vis such processes, at times promoting the transactions and at others opposing them. This chapter reviews a number of recent takeover bids (both successful and unsuccessful), and examines the winners and the losers in this process through an analysis of stock market (event study) and other data. The interaction between competition policy and ownership constraints is revealed as a key determinant of public? policy. Chapter 15 examines the substantial literature on the subject of mergers and acquisitions suggesting that many change of control transactions result in value destruction. While undesirable, in most cases this loss of value is not sufficiently profound to threaten the ongoing existence of the enlarged firm. However, some transactions ? which we dub ?killer acquisitions? do have this effect. This chapter is devoted to a discussion of this relatively under investigated topic. Chapter 16 examines the Chinese company (Lenovo)?s acquisition of the personal computer (PC) division of the world?s third most valuable brand, IBM,? shocked the world when the proposed deal was first announced in late 2004. This acquisition has been described as "a snake swallowing an elephant". This chapter explains the key elements of the transaction, its economic rationale, and also considers whether this transaction may be an indicator for future M&A transactions involving Chinese companies as acquirers. Chapter 17 deals with the difficult beginnings of the National Bank of Canada, which was the merger of the Canadian National Bank and the Provincial Bank. It presents a model of the net income ratio of the National Bank compared with other big Canadian banks. It shows that the net income ratio of the National Bank reverts to a long term level which is quite low compared with those of other banks and more generally with the banking standards.
Library of Congress Subject Headings for this publication:
Consolidation and merger of corporations.