Location strategies and value creation of international mergers and acquisitions

Location Strategies and Value Creation of International Mergers and Acquisitions Series Editor Paul-Jacques Lehmann Location Strategies and Value Creation of International Mergers and Acquisitions Ludivine Chalenỗon First published 2017 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address: ISTE Ltd 27-37 St George’s Road London SW19 4EU UK John Wiley & Sons, Inc 111 River Street Hoboken, NJ 07030 USA www.iste.co.uk www.wiley.com © ISTE Ltd 2017 The rights of Ludivine Chalenỗon to be identified as the author of this work have been asserted by her in accordance with the Copyright, Designs and Patents Act 1988 Library of Congress Control Number: 2016961402 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library ISBN 978-1-78630-049-2 Contents Acknowledgements ix General Introduction xi Part Location and Performance of Mergers and Acquisitions Introduction to Part Chapter Characteristics and Location of Mergers and Acquisitions 1.1 Modes of conduct of mergers and acquisitions 1.1.1 The characteristics of mergers and acquisitions 1.1.2 Mergers and acquisitions as modes of entry on foreign markets 1.2 International development by means of mergers and acquisitions 1.2.1 Geographic distance and economic growth 1.2.2 Quality of institutions and cultural differences 1.3 Conclusion 18 32 33 38 47 vi Location Strategies and Value Creation of International Mergers and Acquisitions Chapter Analysis of the Performance of Mergers and Acquisitions 2.1 Theoretical perspectives 2.1.1 The perspective of industrial economy 2.1.2 The perspectives of informational efficiency and organizational finance 2.2 Performance of mergers and acquisitions 2.2.1 Measuring the performance of mergers and acquisitions 2.2.2 Value creation factors 2.3 Conclusion 49 50 50 57 68 68 77 99 Conclusion to Part 103 Part Methodology of the Empirical Study 105 Introduction to Part 107 Chapter Research Methodology 109 3.1 Methodological choices 3.1.1 Epistemological stance 3.1.2 Event studies 3.2 Statistical analysis 3.2.1 Simple and multiple linear regressions 3.2.2 Logistic regressions 3.3 Conclusion Chapter Presentation of the Empirical Study 4.1 The constitution of the sample 4.1.1 The selection of the sample contents 4.1.2 Data collection 4.2 Descriptive analysis of the sample 4.2.1 The main sample 4.2.2 A focus on “clustered” announcements 4.3 Conclusion Conclusion to Part 109 110 113 140 140 145 151 153 154 154 158 171 171 193 195 197 Contents vii Part Location and Value Creation of Mergers and Acquisitions by French Acquirers 199 Introduction to Part 201 Chapter Determinants of Location of Mergers and Acquisitions 203 5.1 Geographic distance and economic growth 5.1.1 The impact of geographic distance 5.1.2 The role of economic growth 5.2 The quality of institutions and cultural differences 5.2.1 The influence of the quality of institutions 5.2.2 The impact of cultural differences 5.2.3 The global research model 5.3 Conclusion Chapter Determinants of Value Creation of Mergers and Acquisitions 6.1 Value creation and acquirer focus 6.1.1 The analysis of the reaction of financial markets 6.1.2 Characteristics of the acquirer 6.2 Target focus and operation 6.2.1 Characteristics of the target 6.2.2 Characteristics of the operation 6.3 Conclusion 207 208 212 216 216 220 224 227 231 232 232 244 257 258 277 292 Conclusion to Part 297 General Conclusion 299 Appendices 315 Appendix 317 Appendix 319 viii Location Strategies and Value Creation of International Mergers and Acquisitions Appendix 321 Appendix 323 Appendix 325 Appendix 327 Appendix 329 Appendix 331 Bibliography 333 Index 363 Acknowledgments I wish to express my most sincere gratitude to, first and foremost, my PhD supervisors Professors Alain Marion and Ulrike Mayrhofer They have been great guides, helping me progress along this doctoral process, which finds its accomplishment in this book Their support, availability and goodwill have been fundamental for me to achieve this work I also wish to thank Professors Isabelle Martinez, Patrick Sentis and Philippe Very for their comments and advice during this research I feel honored by the interest they have shown in my work My gratitude also goes to Professor Tao-Hsien Dolly King from the University of Charlotte (USA) as well as to Professors Diane-Gabrielle Tremblay, Jean-Yves Filbien and Diego Amaya from the University of Quebec (Canada) for welcoming me at their work place and advising me in the progress of my research I warmly thank all the professors and doctorate students of the Magellan Research Center of the IAE Lyon (France) Their comments and remarks guided me throughout the various stages of this work, from the onset of the research project to the successive choices that resulted in the publication of this work Last but not least, I heartfully thank my spouse, parents, family and friends who listened, probably more often than reasonable, to me telling them about my research I wish to especially thank Anne-Joëlle, Caroline and Aurélien who spent long hours proofreading my chapters Many thanks to you all General Introduction “One needs two legs to walk Globalization encourages us to search beyond our borders, but one also needs to strengthen one’s capacity at home, on one’s historical market sectors” Paul HERMELIN, Chief Executive Officer, Capgemini (Les Echos, April 5, 2011) “Acquisitions constitute an essential axis of the profitability growth plan of Rexel and we will keep investing in emerging markets as well as in mature markets” Rudy PROVOOST, Chairman of the Board of Rexel (Activity Report, 2012, p 16) “Today, our ambition is to become a global leader, balancing emerging economies and mature economies, innovation potential and growth potential” Bruno LAFONT, Chief executive Officer of Lafarge (Les Echos, May 7, 2014) These quotes from economic and finance journals highlight how important it is for the performance of companies to develop internationally, especially via means of mergers and acquisitions Mergers and acquisitions activity is characterized, timewise, by waves of increased activity The last of such waves peaked in 2007 to recede with the economic crisis of 2008 To date, 2007 is the year during which the largest xii Location Strategies and Value Creation of International Mergers and Acquisitions number of operations occurred, for a total sum of 4,130 billion dollars [THO 14] Although the economic context can explain the relative slowdown of external growth operations of companies, their activity remains high and the public announcements of 2014 suggest a new wave may be forming French companies are particularly active as they account for 4% of the total number and value of operations completed globally They, therefore, reach the third rank, just after the American and British companies (ranking established on the basis of the information available in the databases of Securities Data Company (SDC) Platinium on Line, from 1990 to June 2014) During the first months of 2014, the French market displayed a strong growth, registering operations that sum up to a value of 107.7 billion euros This sum is four times greater than that of the first semester of 2013 (an article in Thomson Reuters, published on July 1, 2014) Moreover, the study of merger and acquisition dynamics shows an increase in the number of operations involving different nationalities For example, such operations haves increased by 53% in 2011 [CNU 14] Furthermore, companies from emerging countries account for an increasing part in merger and acquisition activity The fraction of operations completed in these countries shows a clear growth in volume, contrary to these in mature countries: from only 6% in 1990, they rose to 24% in 2011 and even to 26% in 2013 [CUN 14] This significant recourse to external growth strategies can be explained by the fact that such strategies enable a company to meet various objectives in a limited amount of time [SLA 08] The literature, however, often highlights the risks carried by such operations Since they have multiple characteristics and motivations, they are very complex in a financial, strategic, as well as a human perspective Most studies about the relevance of such acquisitions report a lowering of the performance of company or, at best, a stagnation after the merger and acquisition operation [AGR 92, DEV 09] In the same vein, 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255, 256, 288, 291 agency theory, 65, 67, 91 asymmetry of information, 61–63, 80, 81, 84, 85, 87, 91 capitalization, 204–206, 209, 213, 217, 220, 221, 225 characteristics of the acquirer, 154, 160, 172 operation, 167, 169 target, 160, 162, 164 correlation matrix, 169–171 cultural differences, 6, 26, 33, 38, 40, 41, 43, 44, 46–48, 203, 216, 220– 229 D, E, F diversification, 204, 205, 207, 209, 213, 217, 221, 225, 279–282, 288, 289, 292, 294 eclectic paradigm, 5, 23, 28, 30, 31 economic growth, 6, 33, 37, 46–48, 203, 207, 208, 212–216, 225–228 models, 121, 126 efficiency of financial markets, 59, 62 emerging countries, 203–205 event study, 109, 113–119, 121, 124, 125, 128, 131, 133 financial analysis, 176 G, H, I geographic distance, 6, 32–35, 38, 46–48, 203, 207–212, 216, 225– 229 hypothetico-deductive approach, 110, 112, 113, 151 industrial economy, 49, 50, 67, 100 internationalization, 5, 18, 19, 23 L, M, N linear regressions, 140, 143, 151 location of mergers and acquisitions, 178, 203, 229 location of the target, 241, 245, 249, 255, 257–259, 260, 261, 263, 266– 269, 271, 272, 278, 281, 282, 284– 286, 291, 295 Location Strategies and Value Creation of International Mergers and Acquisitions, First Edition Ludivine Chalenỗon â ISTE Ltd 2017 Published by ISTE Ltd and John Wiley & Sons, Inc 364 Location Strategies and Value Creation of International Mergers and Acquisitions logistic regressions, 140, 145, 146, 150, 151 market power, 53–55 mature countries, 205–210, 212–215, 217, 218, 221, 222, 224, 225, 227, 229 mergers and acquisitions activity, 18, 37, 40, 44 mode of payment, 277–279, 283– 285, 289, 294 modes of entry, 18, 23–28, 30, 32, 36, 39, 47 nature of the acquirer, 250, 252, 257, 287 P, Q, R parametric and non parametric tests, 130 positivist epistemological paradigm, 110 press review, 154, 155, 158–160, 168, 169, 176, 190, 196 quality of institutions, 6, 38–40, 46– 48, 203, 216–220, 224, 225, 227– 229 relative size of the operation, 277, 282, 285–287, 290, 292, 294, 294 S, W signal theory, 62, 91 size of the acquirer, 244–250, 285, 287–291, 293–295 statistical models, 122, 126 status of the target, 258, 259, 261– 263, 291 synergies, 7–9, 11, 12, 26, 50, 52–57, 85, 92 wave of mergers and acquisitions, 10, 11, 15, 19 Other titles from in Innovation, Entrepreneurship and Management 2016 BARBAROUX Pierre, ATTOUR Amel, SCHENK Eric Knowledge Management and Innovation (Smart Innovation Set – Volume 6) BEN BOUHENI Faten, AMMI Chantal, LEVY Aldo Banking Governance, Performance And Risk-Taking: Conventional Banks Vs Islamic Banks BOUTILLIER Sophie, CARRÉ Denis, LEVRATTO Nadine Entrepreneurial Ecosystems (Smart Innovation Set – Volume 2) BOUTILLIER Sophie, UZUNIDIS Dimitri The Entrepreneur (Smart Innovation Set – Volume 8) BOUVARD Patricia, SUZANNE Hervé Collective Intelligence Development in Business GALLAUD Delphine, LAPERCHE Blandine Circular Economy, Industrial Ecology and Short Supply Chains (Smart Innovation Set – Volume 4) GRUNWALD Armin The 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After reviewing the literature on the location and performance of mergers and acquisitions, we understand that this... 38 47 vi Location Strategies and Value Creation of International Mergers and Acquisitions Chapter Analysis of the Performance of Mergers and Acquisitions ... consists of detailing the empirical studies that focus on estimating the performance of mergers and Location Strategies and Value Creation of International Mergers and Acquisitions acquisitions