Bidder motivation and long-term performance of UK mergers

Abstract

Earlier studies reported that bidders significantly underperform in the long-term post-acquisition period, but a growing body of literature shows that bidders’ long-term underperformance is not an obvious phenomenon. Many theories exist regarding the motivation towards initiation of a corporate takeover by acquisition bidding. This study has examined three major motivations of corporate acquisitions (hostile, hubris, and synergy) separately and measured the market performance of bidding firm over a long-horizon period. Bidders and targets are identified from a sample of completed UK takeovers between the period 1990 and 1998 that accurately reflect a specific merger motive. The findings show that the performance in the post-acquisition period depends on the main driving force behind the acquisition. The conclusions presented in this paper add new evidence to the post-acquisition dilemma by postulating that the underlying motives behind the takeover is related to the performance of the bidder over the long-horizon