Do European bidders pay more in cross-border than in domestic acquisitions? New evidence from Continental Europe and the UK

Abstract

In this paper, we investigate whether European mergers and acquisitions (M&A) create more value to target than bidding firm shareholders, and why bidders pay larger premiums in cross-border than in domestic acquisitions. Using a sample of 275 intra-European public acquisitions initiated between 2003 and 2010, we find target firm shareholders to earn significantly positive bid premiums in both domestic and cross-border acquisitions. However, these premiums are substantially greater, approximately 8% greater, in cross-border than in domestic acquisitions. When the method of payment is considered, the bid premiums are found to be much larger for stock than cash offers. Our empirical results are in line with those for the US takeover market. Previous M&A literature reports that the difference in bid premiums between cross-border and domestic acquisitions can be explained by variations in corporate governance structures. Our analysis of the European takeover market shows that the cross-border effect in target bid premiums is decreasing with the increased quality of corporate governance/investor protection in the bidding firm. However, no evidence exists that this effect is more pronounced in deals completed with stock. Finally, we provide new arguments in support of the hypothesis that there is significant difference in abnormal returns to targets and bidders depending on their location − Continental Europe or the UK/Ireland.