CONCLUSIONS - The Impact of Acquisitions on Share Pricing and Long Term Performance

The purpose of this study was to combine two widely used methodologies that examine performance of M&As in perspective of shareholder value and operating performance. The study examined post-financial crisis transactions from automotive industry that have taken place between 2008 and 2010. Automotive industry is often characterized as an industry, which has faced a lot of consolidation pressure so therefore it acted as a good proxy as many companies in various industries are seeking growth and strategic gains through acquisitions. Many studies have found that acquiring companies lose value over time, meaning that acquisitions fail.

However, it is said that automotive industry holds specific vertical synergies, which should reflect to successful acquisitions.

The research answered two research questions 1) Is there a market reaction to the acquirer’s stock price after an M&A announcement? And 2) Is the market reaction in line with the long-term performance? By first examining the commonly used theories that explain M&A and then looking into previous research on the topic. As more M&As have been executed over the past four decades, the transactions have drawn the attention of academics as well.

M&A studies have been popular since the late 1970s and large amounts of research have been done. However, the results of the studies have been controversial for various reasons. Not only the performance, but also motivations and other reasons for diversification have been studied. In this study behavioral and neo-classical theories were combined. The latter theory rationalizes if mergers and acquisitions create value or produce competitive advantage while behavioral theories recognize other objectives as well.

M&A performance is usually studied by applying either event study or accounting study where the former focuses on stock market and value creation for shareholders and accounting study examines the long-term performance and indirect value

creation for shareholders. In this study both of the methodologies were used, as the objective was to see if the market reaction is in line with the long-term performance.

By applying event study and looking into the cumulative abnormal returns of acquiring companies, the effect of the announcement of an acquisition on share pricing was studied. The event study results were then compared to accounting study results.

In the accounting study the performance of acquiring companies was measured by comparing the annual industry adjusted performance four years before and after the transaction. By industry adjusting the results, the difference in performance directly indicates how the acquirer has performed on average compared to the median performance of the whole industry.

The research questions were answered through four hypotheses that grounded from the existing literature and theory. First two of the hypotheses could be accepted while the third hypothesis could be accepted only partly and hypothesis number four was rejected. It is clear that investors see acquisitions as value creating or at least not value destructing. The market reaction for an announcement of M&A transaction is positive and statistically significant, even though not very large. Markets act quite efficiently since the abnormal returns occur only on the announcement day.

We can say that the market reaction is in line with the long-run performance since investments are justified if they do anything else than destroy value. Based on our sample, only the return on equity (ROE) decreases statistically significantly when examined with change model and no statistically significant decrease is observed when examined with regression model. However, the hypothesis that operating performance increase in the post-acquisition period is declined.

The final hypothesis concerned about the type of the deal and characteristics impact on performance. When the share pricing is examined, it is evident that investors value different type of acquisitions differently. Investors find deal characteristics, as signal for acquirer’s valuation but the reaction is not rational whit the long-term performance.

Conversely, transactions where synergies are targeted i.e. horizontal acquisitions have positive stock price reaction and better performance in the long-term.

This study confirms that automotive industry acquisitions have valuable synergies and investors are able to capitalize on those. Unlike other researches have showed, in automotive industry acquirers are able to maintain performance, which is above the industry median. Investors are also able to get both short- and long-term gains, which is observable when looking into the stock price reaction after the announcement. This study confirms the observation of other academics that horizontal M&As perform better in terms of value and operating performance. Conversely, it does not confirm that method of payment has an impact on performance, even though it affects the share pricing on announcement.

Future research could extend the time period under analysis and therefore get more observations from different deal types and methods of payment. By obtaining large enough sample, we could say with high confidence how different characteristics affect the performance. This study could also be repeated by matching the control group and sample by geography and dig into the different geographical differences that may occur. And finally, as stated in the text earlier, some case studies about single transactions and their strategic motivations need to be done in order to have deeper understanding on the operational performance.

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Appendices

Riberas; Grupo Egana 1.7.2010 29.12.2010 246,63 Stock Horizontal

Amtek India Limited

(BSE:532282) - 29.5.2010 15.12.2010 30,46 Cash Horizontal

Silverstone Berhad Lion AMB Resources Berhad 21.10.2010 10.12.2010 106,3 Hybrid Horizontal Heartland Recreational

Vehicles, LLC Catterton Partners Corporation 17.9.2010 16.9.2010 160,19 Hybrid Horizontal

Inergy Automotive Systems

S.A. Solvay SA (ENXTBR:SOLB) 17.6.2010 8.9.2010 330 Cash Horizontal

Maflow Polska Sp Z O O Maflow S.p.A. 14.6.2010 10.8.2010 18,16 Cash Conglomerate

OMVL SpA SIT La Precisa S.p.A. 2.7.2010 2.7.2010 18,42 Cash Horizontal

Linamar Hungary Autóipari és Gépgyártó Nyilvánosan

Muködo Részvénytársaság - 2.7.2010 2.7.2010 22,22 Cash Horizontal

CMW (Tianjin) Industry Co.,

Ltd. - 29.6.2010 29.6.2010 23,7 Cash Conglomerate

Visteon Corp., Plant in Tuscaloosa

Visteon Corporation

(NYSE:VC) 26.5.2010 25.5.2010 11,88 Cash Horizontal

Monotona Tyres Ltd. Ruia Group 30.4.2007 21.5.2010 20,43 Cash Horizontal

AS Norma IFE Mezzanine 1.3.2010 14.4.2010 38,16 Cash Horizontal

Dytech Ensa S.L.

Dytech Dynamic Fluid

Technologies S.p.A. 9.4.2010 9.4.2010 118,64 Cash Horizontal

Timken Co., Needle Roller Bearings Business

The Timken Company

(NYSE:TKR) 29.7.2009 31.12.2009 235,01 Cash Horizontal

Tigar Tyres d.o.o.

Akcionarsko drustvo Tigar Pirot

(BELEX:TIGR) 24.1.2008 15.12.2009 31,18 Cash Horizontal

Utilimaster Corporation

John Hancock Life Insurance

Company, Inc. 19.11.2009 30.11.2009 33,16 Cash Conglomerate

Wilhelm Karmann GmbH,

Osnabrueck Plant Wilhelm Karmann GmbH 20.11.2009 20.11.2009 35 Cash Horizontal

BAF Technologies, Inc. - 23.9.2009 1.10.2009 20,65 Cash Horizontal Arvin Innovation, Inc., Steel

Wheel Business Arvin Innovation, Inc. 4.8.2009 21.9.2009 124,93 Cash Horizontal

Plastal Industri AB Plastal Group AB 2.7.2009 1.9.2009 35,05 Cash Conglomerate

Teleflex Inc., Power Systems Business

Teleflex Incorporated

(NYSE:TFX) 20.7.2009 4.8.2009 10,55 Cash Conglomerate

Halla Visteon Climate Systems Alabama Corporation

Visteon Corporation

(NYSE:VC) 26.6.2009 31.7.2009 44,82 Cash Horizontal

Noble European Holdings B.V. Noble International, Ltd. 8.5.2009 17.7.2009 82,35 Cash Conglomerate Dongfeng Motor Group Co.,

(KOSE:A000270) 3.4.2009 25.6.2009 521,84 Stock Horizontal

Navistar RV LLC Monaco Coach Corporation 26.3.2009 4.6.2009 85,99 Cash Horizontal

Wuxi Zhongqiang Autocycle Co., Ltd.

Wuxi Baoshiyun Autocycle Co.,

Ltd. 24.10.2008 4.5.2009 26,53 Hybrid Horizontal

Samvardhana Motherson

RUBBER, s.r.o. Matador Puchov 31.12.2008 31.12.2008 20,6 Cash Horizontal

Man Star Trucks & Buses,

Cable Harness Business MAN Bus Sp. z o.o. 8.10.2008 31.12.2008 21,4 Cash Horizontal

Suzuki Motorcycle India Pvt.

Ltd. - 26.11.2008 16.12.2008 31,57 Cash Horizontal

Mahindra Kinetic Scooters &

Motorcycles Ltd. Kinetic Motor Company Limited 30.7.2008 30.11.2008 16,66 Cash Horizontal

GLO S.r.l. Oldco M Corporation 2.9.2008 28.11.2008 10,79 Cash Conglomerate

Brembo Brake India Pvt. Ltd.

Bosch Chassis Systems India

Ltd 27.10.2008 18.11.2008 10,71 Cash Horizontal

Zhucheng Shuguang Axle Co., Liaoning SG Group Co., Ltd. 27.10.2008 27.10.2008 436,61 Cash Horizontal

Ltd.

Toyota Auto Body Co., Ltd. 28.7.2008 1.10.2008 49,14 Stock Horizontal Pittsburgh Glass Works LLC

Apogee Enterprises, Inc.

(NasdaqGS:APOG) 20.12.2007 30.9.2008 18,91 Cash Conglomerate

Nanjing Automobile

Manufacturing Co., Ltd. Chunlan (Group) Corporation 10.7.2008 5.9.2008 15,73 Cash Horizontal Eicher Motors Ltd., Commercial

Vehicles, Components and Engineering Design Services Business

Eicher Motors Ltd.

(BSE:505200) 10.12.2007 22.8.2008 237,84 Hybrid Horizontal

Perfect Circle India Limited

Anand Automotive Systems

Limited 13.8.2008 13.8.2008 10,97 Cash Horizontal

Magna Kansei Limited

Intier Automotive Holding (U.K.)

Ltd. 11.8.2008 11.8.2008 10,23 Cash Horizontal

MV Agusta Motor S.p.A - 11.7.2008 8.8.2008 66,09 Cash Horizontal

Consolidated Diesel

Corporation CNH Global N.V. 18.7.2008 31.7.2008 38,51 Cash Horizontal

Caterpillar Remanufacturing

Drivetrain LLC Gremada Industries, Inc. 16.6.2008 31.7.2008 40,04 Cash Horizontal

Pirelli Tyre S.p.A.

Leonardo S.p.A. 11.3.2008 9.7.2008 434,4 Cash Horizontal

Trucktechnic S.A. - 3.7.2008 2.7.2008 11 Cash Horizontal

JCIM, LLC

Plastech Engineered Products,

Inc. 13.6.2008 1.7.2008 128,95 Cash Conglomerate

Shanghai Maple Guorun Automobile Company Limited

Shanghai Maple Automobile

Co., Ltd. 14.7.2007 1.7.2008 39,81 Stock Horizontal

Indus Motor Company Limited

plc Ford Motor Co. (NYSE:F) 26.3.2008 2.6.2008 1606,43 Cash Horizontal

Delphi Automotive Systems, LLC, Certain Assets At

Kettering, Ohio Facility DPH-DAS LLC 7.3.2008 30.5.2008 12,37 Cash Horizontal

Jingzhou Henglong Automotive Parts Co., Ltd.

Hubei Wanlong Investment Co.

Ltd. 22.1.2008 3.4.2008 17,25 Hybrid Horizontal

Concentric Birmingham Limited Bridgepoint Advisers Limited 22.2.2008 1.4.2008 119,38 Cash Horizontal

New Era Co., Ltd. Tadano Ltd. (TSE:6395) 21.12.2007 1.4.2008 18,33 Cash Conglomerate

Beijing Enterprises Ever Source (Beijing) Company

Limited - 14.1.2008 31.3.2008 78,5 Hybrid Horizontal

S.C. Automobile Craiova SA. - 12.9.2007 19.3.2008 57,06 Cash Horizontal

Public Joint Stock Company Avtovaz (MICEX:AVAZ)

Rosoboronexport State Corporation; Troika Capital

Partners-Private Equity 8.12.2007 4.3.2008 794,49 Cash Horizontal

P.T. Isuzu Astra Motor Indonesia

ITOCHU Corporation (TSE:8001); P.T. Arya

Kharisma 6.2.2008 6.2.2008 19,09 Cash Horizontal

Johnson Matthey Catalysts (Germany) GmbH

Terex Material Handling & Port

Solutions AG 10.12.2007 6.2.2008 214 Cash Horizontal

Technol Eight Co., Ltd. OS Holding 21.11.2007 25.1.2008 18,84 Stock Conglomerate

Lumax Industries Limited

(BSE:517206) - 14.5.2007 22.1.2008 18,31 Cash Horizontal

Appendix 2. Performance Measures

Graphs of time- and industry median adjusted performance measures where t indicates the transaction year.

-0.5 % 0.0 % 0.5 % 1.0 % 1.5 % 2.0 % 2.5 %