Value Creation in Mergers, Acquisitions, and Alliances

202 Pages·2009·0.82 MB·English

by  Kathrin Bosecke

Kathrin Bösecke
Value Creation in Mergers, Acquisitions, and Alliances
GABLER RESEARCH
Kathrin Bösecke

Value Creation in Mergers,
Acquisitions, and Alliances
With a foreword by Prof. Dr. Wolfgang Pfaffenberger
RESEARCH
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detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Dissertation Jacobs University Bremen, 2009
1st Edition 2009
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Foreword

About ten years ago, the network-oriented markets for electricity and natural gas were
opened. The formerly vertically integrated companies were partly disintegrated, the regional
or local monopolies were removed, and customers received the possibility to choose their
supplier as in other industries.
This led to fundamental changes in the market structure. In an industry with relatively low
growth of demand, companies were looking for additional growth and at the same time
reacted to competitive pressures. Often mergers, acquisitions, and alliances were the strategic
answer. The period of beginning liberalisation is, therefore, also a period of intranational and
international attempts to join forces in order to prepare for competition.
How successful are such attempts?
In this book, Kathrin Bösecke gives the answer based on an empirical study using a large data
set and identifies success factors for business combinations in the utility industry.
This study is of great interest for economists studying the impacts of business strategies as
well as for practioners in finance and the utility industry observing the market development in
the utility sector.

Prof. Dr. Wolfgang Pfaffenberger
Preface

Doing research can be stressful and frustrating, but when it yields exciting results it can also
be very rewarding. There were a number of people, during the course of this research, who
gave advice or offered encouragement and good cheer when needed.
Foremost, I want to thank my supervisor Professor Dr. Andreas Bausch for the freedom,
encouragement, and support for my research as well as for all that I was able to learn during
the three years of our collaboration. I am also very grateful to Professor Dr. Wolfgang
Pfaffenberger who always found time whenever I had questions and who provided me with
much useful advice, in particular, on the utility section of my dissertation. Furthermore, I
want to thank Professor Dr. Reinhard Meckl for being part of my dissertation committee.
Moreover, I want to thank my colleague Dr. Thomas Fritz for helpful discussions and all my
other colleagues who made our unit a lively place. I owe many thanks to Dr. Stefanie Kesting
who almost instantly replied to any utility-specific questions that came to mind and who
became a good friend along the way.
Next, I want to thank Volkmar Behr who never tired of discussing valuable insights into
management practice and who provided me with much useful information and many contacts.
I am also grateful to Kevin Pfeiffer who helped me to make my dissertation a handsome one.
There are a number of other persons I want to thank: first, Dr. Thomas Nisslmüller for his
steadfast belief and the vision he showed; next, my brother Falk for his practical support in
handling the great amount of data for this study; and very special thanks to Dirk for being the
best emotional support one could wish for.
Finally, I want to thank my wonderful parents who always have supported me throughout my
life and who have made it possible to go all that long way – this thesis is dedicated to you.

Kathrin Bösecke
Table of Contents

Foreword................................................................................................................................................................V
Preface................................................................................................................................................................VII
Table of Contents................................................................................................................................................IX
List of Figures......................................................................................................................................................XI
List of Tables....................................................................................................................................................XIII
Abbreviations.....................................................................................................................................................XV
1 Introduction.................................................................................................................................................1
1.1 Background..................................................................................................................................................1
1.2 Scope and aim of the study...........................................................................................................................2
1.3 Organization of the study.............................................................................................................................4
2 Fundamentals...............................................................................................................................................5
2.1 Definition of business combination..............................................................................................................5
2.2 Types of business combinations...................................................................................................................6
2.3 Business combinations from a perspective of corporate growth..................................................................9
2.4 Business combinations from a process perspective....................................................................................10
2.5 Business combinations and success............................................................................................................13
2.6 Relevant theories for business combinations..............................................................................................15
3 Value creation in mergers and acquisitions – theoretical paradigms and past research....................25
3.1 Theoretical background..............................................................................................................................25
3.2 Past research...............................................................................................................................................33
3.3 Summary and conclusions..........................................................................................................................40
4 Value creation in alliances – a meta-analysis..........................................................................................41
4.1 Introduction................................................................................................................................................41
4.2 Theoretical background and hypotheses.....................................................................................................42
4.3 Method.......................................................................................................................................................49
4.4 Sample........................................................................................................................................................51
4.5 Results........................................................................................................................................................54
4.6 Discussion..................................................................................................................................................56
4.7 Summary and conclusions..........................................................................................................................59
5 A quantitative analysis of value creation in business combinations – in the European utility
industry.......................................................................................................................................................61
5.1 Analysis of the European utility industry...................................................................................................62
5.2 Derivation of hypotheses............................................................................................................................70
5.3 Method.......................................................................................................................................................87
X Table of Contents
5.4 Sample........................................................................................................................................................93
5.4.1 Sample selection.................................................................................................................................93
5.4.2 Sample characteristics........................................................................................................................95
5.5 Results and discussion for the investigation of M&As............................................................................100
5.5.1 Overall sample..................................................................................................................................100
5.5.2 Confirmatory analysis.......................................................................................................................101
5.5.3 Explorative analysis..........................................................................................................................110
5.5.4 Additional accounting-based analysis..............................................................................................116
5.5.5 Summary and conclusions................................................................................................................117
5.6 Results and discussion for the investigation of alliances..........................................................................122
5.6.1 Overall sample..................................................................................................................................122
5.6.2 Confirmatory analysis.......................................................................................................................123
5.6.3 Explorative analysis..........................................................................................................................125
5.6.4 Additional accounting-based analysis..............................................................................................134
5.6.5 Summary and conclusions................................................................................................................137
6 Summary..................................................................................................................................................143
Appendices.........................................................................................................................................................147
References..........................................................................................................................................................159
List of Figures

Figure 1: Research question....................................................................................................................................3
Figure 2: Types of business combinations..............................................................................................................7
Figure 3: Forms of business combinations along the market-hierarchy-continuum...............................................8
Figure 4: Growth options......................................................................................................................................10
Figure 5: Activities in the transaction process of business combinations.............................................................11
Figure 6: The four sub-processes of a transaction.................................................................................................12
Figure 7: Theories of merger motives...................................................................................................................26
Figure 8: Forms of alliances..................................................................................................................................45
Figure 9: Data sources used in primary investigations..........................................................................................52
Figure 10: Sources of sample................................................................................................................................52
Figure 11: Vote-counting analysis........................................................................................................................53
Figure 12: Segments of the utility industry...........................................................................................................62
Figure 13: Simplified electricity supply value chain.............................................................................................63
Figure 14: Electrical sector national and cross-border M&As in the EU..............................................................67
Figure 15: Top 40 deals in utility industry: analysis of rationales – 2002 to 2004...............................................68
Figure 16: Motives for mergers and alliances in the German energy supply industry..........................................70
Figure 17: Approach for derivation of hypotheses................................................................................................71
Figure 18: Major cost-side synergy potentials in different types of mergers of energy supply firms...................76
Figure 19: Development of transaction values (average mean deal values) of cross-border electricity deals in
Europe.................................................................................................................................................80
Figure 20: Worldwide electricity and gas deals by value and by number.............................................................80
Figure 21: Number of M&A transactions and alliances and average M&A transaction volume in the sample
period...................................................................................................................................................95
Figure 22: National versus cross-border transactions...........................................................................................97
List of Tables

Table 1: Rationales for business combinations according to the major theories...................................................24
Table 2: Comparison of meta-analyses on value creation in mergers and acquisitions........................................39
Table 3: Results of meta-analysis on value creation in alliances..........................................................................55
Table 4: Electricity generation and upstream gas market structure.......................................................................66
Table 5: Major strategic objectives of M&As in various time periods.................................................................79
Table 6: Variables to be investigated and formation of subsamples for M&As....................................................85
Table 7: Variables to be investigated and formation of subsamples for alliances.................................................87
Table 8: Country of origin of bidders, targets, and alliance partners....................................................................96
Table 9: Industries and industry-relatedness of sample firms...............................................................................97
Table 10: Selected key data for M&A and alliance announcements.....................................................................98
Table 11: Further information on M&A sample...................................................................................................99
Table 12: Further information on alliance sample..............................................................................................100
Table 13: Overall cumulative abnormal returns for all bidders and all stock-listed targets................................101
Table 14: Cumulative abnormal returns for bidding energy supply firms according to the acquisition
strategy...............................................................................................................................................102
Table 15: Cumulative abnormal returns for bidding energy supply firms according to the acquisition strategy
for takeovers of stock-listed targets....................................................................................................102
Table 16: Cumulative abnormal returns for national and cross-border M&As of all bidding energy supply
firms....................................................................................................................................................103
Table 17: Cumulative abnormal returns for national and cross-border M&As for takeovers of stock-listed
targets.................................................................................................................................................103
Table 18: Cumulative abnormal returns for bidding energy supply firms according to transaction time...........105
Table 19: Cumulative abnormal returns for takeovers of stock-listed targets according to transaction time......105
Table 20: Cumulative abnormal return for bidding energy supply firms according to mode of payment..........106
Table 21: Cumulative abnormal returns for bidding energy supply firms with and without prior M&A
experience in the past three years.......................................................................................................107
Table 22: Cumulative abnormal returns for bidding energy supply firms according to level of prior
experience...........................................................................................................................................107
Table 23: Cumulative abnormal returns for takeovers of stock-listed targets according to level of prior
experience...........................................................................................................................................108
Table 24: Cumulative abnormal return for bidders with highest and lowest level of prior M&A experience....108
Table 25: Cumulative abnormal returns of bidding energy supply firms for takeovers of state-owned and
private targets.....................................................................................................................................109
Table 26: Cumulative abnormal returns of privatizations according to region entered......................................110
Table 27: Cumulative abnormal returns for bidding energy supply firms with high and low leverage prior to
the acquisition.....................................................................................................................................111
Table 28: Cumulative abnormal returns for takeovers of stock-listed targets by bidders with high and low
leverage...............................................................................................................................................112
Table 29: Cumulative abnormal returns according to origin of bidding energy supply firm for the [(cid:2)1, +1]
interval................................................................................................................................................113
Table 30: Cumulative abnormal returns according to origin of target firm for the [(cid:2)1, +1] interval..................113
Table 31: Cumulative abnormal returns for small and large targets...................................................................114
Table 32: Cumulative abnormal returns of bidding energy supply firms for takeovers of stock-listed and
non stock-listed targets.......................................................................................................................115