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The Performance of the European Market for Corporate Control: Evidence from the Fifth Takeover Wave


  • We acknowledge support from Rolf Visser for allowing us to use the databases of Deloitte Corporate Finance. We are grateful for valuable comments from an anonymous referee, Noel Bauldeweyn, Laura Cabeza-Garcia, Hans Degryse, Julian Franks, Marc Goergen, Johan Lupi, Steven Ongena, Peter Szilagyi, and Chendi Zhang as well as from the participants of European Financial Management conference in Vienna, M&A conference at Utrecht University, the NEWGOV conference at European University Institute (Florence), and seminars at Tilburg University and Sheffield University. Luc Renneboog is grateful to the Netherlands Organisation for Scientific Research for a replacement subsidy of the programme ‘Shifts in Governance’; the authors also gratefully acknowledge support from the European Commission via the ‘New Modes of Governance’-project (NEWGOV) led by the European University Institute in Florence; contract nr. CIT1-CT-2004-506392. Correspondence: Luc Renneboog.


This paper presents an in-depth analysis of the performance of large, medium-sized, and small corporate takeovers involving Continental European and UK firms during the fifth takeover wave. We find that takeovers are expected to create takeover synergies as their announcements trigger statistically significant abnormal returns of 9.13% for the target and of 0.53% for bidding firms. The characteristics of the target and bidding firms and of the bid itself are able to explain a significant part of these returns: (i) deal hostility increases the target's but decreases bidder's returns; (ii) the private status of the target is associated with higher bidder's returns; and (iii) an equity payment leads to a decrease in both bidder's and target's returns. The takeover wealth effect is however not limited to the bid announcement day but is also visible prior and subsequent to the bid. The analysis of pre-announcement returns reveals that hostile takeovers are largely anticipated and associated with a significant increase in the bidder's and target's share prices. Bidders that accumulate a toehold stake in the target experience higher post-announcement returns. A comparison of the UK and Continental European M&A markets reveals that: (i) the takeover returns of UK targets substantially exceed those of Continental European firms. (ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on takeover returns in the UK and a negative one in Continental Europe. (iii) Weak investor protection and low disclosure in Continental Europe allow bidding firms to adopt takeover strategies enabling them to act opportunistically towards the target's incumbent shareholders.