The Performance of the European Market for Corporate Control: Evidence from the 5th Takeover Wave

44 Pages Posted: 7 Nov 2006 Last revised: 10 Jan 2009

See all articles by Marina Martynova

Marina Martynova

U.S. Securities and Exchange Commission

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: July 10, 2008


This paper shows 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 statistical significant abnormal returns of 9.13% for the targets and of 0.53% for bidding firms. The characteristics of the targets and bidding firms and of the bid itself are able to explain a significant part of these returns: (i) deal hostility increases the targets' but decreases bidders' returns; (ii) the private status of the target is associated with higher bidder returns; and (iii) an equity payment leads to a decrease in both bidders' and targets' returns. The takeover wealth effect is not limited to the announcement day but is visible prior and subsequent to the bid. In particular, hostile takeovers trigger larger abnormal returns at announcement but this value is incorporated to some extent in the bidder's and target's share price already prior to the bid announcement. In addition, a bidder benefits from accumulating a toehold stake in the target and these benefits are reflected in bidder's returns subsequent to the takeover announcement. A comparison of the UK and Continental European M&A markets reveals that: (i) The abnormal returns of UK targets substantially exceed those of Continental European firm. (ii) The presence of a large shareholder in the bidding firm has a significantly positive effect on the 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 targets' incumbent shareholders.

Keywords: takeovers, mergers and acquisitions, diversification, hostile takeovers, means of payment, cross-border acquisitions, private target, partial acquisitions, blockholder, toehold, investor protection, UK, Continental Europe

JEL Classification: G34

Suggested Citation

Martynova, Marina and Renneboog, Luc, The Performance of the European Market for Corporate Control: Evidence from the 5th Takeover Wave (July 10, 2008). Europen Financial Management Journal, Forthcoming; ECGI - Finance Working Paper No. 135/2006; CentER Discussion Paper No. 2006-118 . Available at SSRN:

Marina Martynova (Contact Author)

U.S. Securities and Exchange Commission ( email )

100 F St. NE
Washington, DC 20549
United States

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

B-1050 Brussels

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE

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