Value creation in European M&As

This paper looks at the value generated to shareholders by the announcement of mergers and acquisitions involving firms in the European Union over the period 1998-2000. Target firm shareholders receive on average a statistically significant excess return of 9% in a onemonth window centered on the announcement date. Acquirers’ excess returns are null on average. When distinguishing in terms of the geographical and sectoral dimensions of the merger deals, our main finding is that mergers in industries that had been previously under government control or that are still heavily regulated generate lower value than M&A announcements in unregulated industries. This low value creation in regulated industries becomes significantly negative when the merger involved two firms from different countries and was primarily due to the lower positive return that shareholders of the target firm enjoyed upon the announcement of the merger. This evidence is consistent with the existence of obstacles (such as cultural, legal, or transaction barriers) to the successful conclusion of this type of transaction, which decrease the probability that the merger will actually be completed as announced and, therefore, reduce its expected value.