The Impact on UK Acquirers of Domestic, Cross-Border, Public and Private Acquisitions

Abstract

We examine the announcement and post-acquisition share returns of 4,000 acquisitions by UK public firms during 1984-1998. We include acquisitions of domestic and cross-border targets, and of both publicly quoted and privately held targets. In acquisitions of domestic public targets, abnormal returns are negative over both the announcement and post-acquisition period. In acquisitions of cross-border public targets, abnormal returns are zero over the announcement period but negative over the post-acquisition period. In contrast, acquisitions of both domestic and cross-border private targets result in positive announcement returns and zero long run returns. The main difference between private and public acquisitions is that glamour acquirers experience negative announcement and long run returns in public acquisitions, whereas glamour acquirers do not underperform in private acquisitions. Furthermore, whereas the underperformance of domestic public acquisitions is limited to acquirers using noncash methods of payment, acquirers of domestic private targets that use noncash methods do not underperform. Overall, cross-border acquisitions result in lower announcement and long run returns than domestic acquisitions. In cross-border acquisitions involving high-tech firms both announcement and long run returns are positive, whilst non-high-tech cross-border acquisitions experience zero announcement returns followed by negative long run performance. Our results also suggest that, in cross-border acquisitions, the national cultural difference between the bidder and target countries has a significantly negative impact on long run returns.