[The Effect of Domestic and Cross-Border Acquisitions on Shareholder Wealth---An Event Study on UK Banking Industry]

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Acknowledgement

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Declaration

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Abstract

The paper analyses the abnormal returns to target shareholders in cross-border and domestic acquisitions of UK banks. The cross-border effect during the bid month is small (0.84 percentage points), although cross-border targets gain significantly more than domestic targets during the months surrounding the bid. It was found that no evidence for the level of abnormal returns in cross-border acquisitions to be associated with market access or exchange rate effects, and only limited support for an international diversification effect. However, the cross-border effect appears to be associated with significant payment effects, and there is no significant residual cross-border effect once various bid characteristics are controlled for.

Table of Contents

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1 INTRODUCTION1

CHAPTER 2 LITERATURE REVIEW (ABOUT 4000 WORDS)4

2.1 Motivation and background of bank mergers4

2.2 Wealth effect on bank mergers and acquisitions9

2.2.1 Abnormal returns to target firms9

2.2.2 Abnormal returns to bidding companies12

2.3 Cross-border effects to acquiring banks13

2.4 Domestic vs. cross-border mergers15

CHAPTER 3 METHODOLOGY20

3.1 Data selection20

3.2 Bank's profile20

3.3 Method and Hypotheses23

CHAPTER 4 RESULT AND ANALYSIS (ABOUT 4000 WORDS)25

4.1 All bank bidders acquiring UK targeted companies25

4.2 Three kind of bank bidders27

4.2.1 UK bank bidders acquiring UK targeted companies27

4.2.2 EU (ex UK) bank bidders acquiring UK targeted companies28

4.2.3 US bank bidders acquiring UK targeted companies30

4.3 Comparison of Three bank bidders33

4.4 Geographical effect37

4.5 Domestic bank bidders versus cross-border bank bidders37

CHAPTER 5 CONCLUSION40

REFERENCES43

APPENDICES58

Chapter 1 Introduction

During the late 1990s and early 2000s, cross-border acquisitions into the UK rose to record levels. In this paper we explore various hypotheses as to why we might expect the levels of target bank abnormal returns to differ systematically between domestic and cross-border acquisitions, and test these hypotheses on a sample of 514 domestic and 116 cross-border acquisitions into the UK over the 2001-2010 period.

During the month of the bid announcement, UK targets gain significantly in both domestic and cross-border acquisitions, with abnormal returns (using the size deciles model) of 18.76% and 19.60% in domestic and cross-border acquisitions, respectively. The additional gain to targets in cross-border acquisitions - the cross-border effect - is small (0.84 percentage points), and is not statistically significant. However, during the months prior to and following the bid, target abnormal returns are significantly higher in bids by foreign acquirors, and significant cross-border effects are observed if longer time periods around the bid announcement are analyzed. Indeed, over the four-month period from t-2 to t+1 (where t refers to the month of the bid announcement), shareholders in UK banks acquired by overseas banks on average gain ...