ABSTRACT
The United Kingdom (UK) and Continental Europe are two of the most dynamic markets for mergers and acquisitions (M&As) in the world. In this paper we investigate the effect of M&A announcements on stock returns of acquiring companies located in Continental Europe and the UK using a sample of 2,823 European acquisitions announced between 2002 and 2010. The analysis is based on characteristics of takeover transactions such as the method of payment, the listing status of the target company, the geographic scope (cross-border vs. domestic), and the industry relatedness of the bidding and the target company, amongst other factors. We find that European bidders regardless of their location earn positive abnormal returns and there is a statistically significant difference between the abnormal returns of stock and cash deals, and between acquisitions of listed and unlisted target companies. Short-term wealth effects are not statistically different between cross-border and domestic acquisitions whether the bidder is located in the UK or Continental Europe. However, we find that bidding firm?s shareholders gain more in equity than in cash offers if they are located in the UK and if they acquire unlisted targets. Cash bids for listed targets are associated with higher abnormal returns when bidders are located in Continental Europe. We do not find evidence that industry diversification destroys value for shareholders of Continental European or UK bidders.