Termariyabuit, Naruedee
(2007)
Stock market-driven acquisitions and toehold acquisitions in Thailand.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis examines the gains to acquiring shareholders in cash-acquisitions which occurred in Thailand in the period between 1992 and 2001. It analyses the impact of stock market valuations at the time the acquisitions occurred and the impact of toehold acquisition strategy on acquirers' post-acquisition performance. The first part reviews the merger and acquisition (M&A) history in the US and Thailand, Thai stock market history and corporate governance. It shows that the merger waves which took place in both countries are positively correlated to economic prosperity. However, after the Asian crisis in 1997, this relationship is reversed for Thailand. Accordingly, the second part empirically investigates the impact of stock market valuations and acquiring shareholders' long-term performance. The findings show that high-valuation acquirers perform significantly less well than low-valuation acquirers. The underperformance is due to an overpayment of acquisition premiums. Two-stage regressions allow us to discover that the acquisition premium is endogenously determined by the acquirer's financial constraint and the target's leverage. The acquirer's financial constraint is found to have a positive relationship with the acquisition premium whereas the target's leverage is found to be negatively related to the acquisition premium. The findings suggested that stock market valuation has a significant impact on acquiring shareholders. Engaging in an acquisition during a high-valuation period destroys shareholders' value in the long-run whereas low-valuation acquisition is considered to be a profitable strategy. In the third part, the role of toeholds1 and their impact on acquirers long-term performance is examined. Simultaneous equations are employed in order to investigate the relationship between the size of the toehold, the stock price run-up2 , the acquisition premium, and the acquirer's long-term performance. Since acquiring a toehold alerts the market to the possibility of a successful takeover and to a target's value, the size of the toehold is found to increase the target's stock price run-up. However, the size of the toehold is not found to have a direct effect on the acquisition premium but indirectly influences the acquisition premium through the stock price run-up. An increase in the stock price run-up is found to positively influence the acquisition premium. Both the stock price run-up and the acquisition premium have significant negative impacts on acquiring shareholders' post-acquisition gains. Therefore, toehold acquisition induces an added cost of acquisition by increasing the target's share price prior to the announcement date and leading to an acquisition premium.
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