An Analysis of Takeovers in the Italian Market Between 1998 and 2008

Research objective

This study aims to analyse the stock market reaction to acquisitions undertaken by Italian public companies between 1998 and 2008. The analysis will show whether significant variations in these companies' stock price are reported as a result of these operations. Therefore, a more defined relationship between takeovers and acquirers' performance will be pursued by focusing on the Italian market which has been almost untouched by previous studies (mainly concentrated on the US and UK markets). The final outcome of this research is intended to assess whether findings emerged from other studies hold in a sample of Italian acquirers.

Research background

The literature has unanimously defined takeovers as value-creating financial operations as far as target firms only are concerned. However, the judgment changes dramatically when the question about takeovers as enriching operations is posed about acquirers. Specifically, two different points of view have emerged over time with regard to acquiring firms' performance. This evidence is evenly distributed between studies that show how acquisitions generate either negative (e.g. Morck et al, 1990; Lamont and Polk, 2002) or zero (or slightly positive at best) acquirers' returns (e.g. Bruner, 2001; Campa and Hernando, 2004). The need for expanded research arises from recent studies showing cultural and structural differences between countries to be a crucial factor that has to be taken into account in order to fully comprehend the impact exerted by takeovers on the acquiring entities involved (Martynova and Renneboog, 2006; Alexandridis et al, 2010). The majority of the literature covers the US market (e.g. Asquith et al, 1987; Fuller et al, 2002; Moeller et al, 2004) with comparatively poor coverage of the European market (e.g. Lowinsky et al, 2004; Martynova and Renneboog, 2006). Apart from the UK (e.g. Conn et al, 2005; Doukas and Petmezas, 2007) and a handful of Continental European countries, mergers and acquisitions (M&A hereinafter) studies have left the rest of Europe almost uncovered. Italy is not an exception as very little contribution has been made towards this country (Resti, 1998; Palmucci and Caruso, 2004). The industrial and technological shocks which led to previous merger waves help understand why the US has been, and still is, the core of the M&A literature for so long. There is, in fact, no direct evidence that Continental Europe participated actively to the first four waves. Only the UK reported an earlier involvement, compared to the rest of Europe, as its participation goes back to the early 1960s (Andrade et al, 2001; Martynova and Renneboog, 2008).

The late European involvement is mainly due to structural barriers that prevented many countries from taking active part in the process. The institutional setting and related market for corporate control has always played a relevant role. In Continental Europe, the level of M&A activity has been much lower than in countries like the US and UK prior to the 1990s. Hostile takeovers, a pattern solely belonging to the US for many years, and highly relevant in the M&A scenario, were extremely rare. For instance, over the 1970s and 1980s, the US was able to restructure its industry mainly through the hostile pattern of takeover, which has been consistently avoided in the Continental part of Europe because of an excessive diversity in countries' corporate structure. In 1989 there were only four hostile takeovers in the rest of Europe, compared to 36 in the UK (Jackson and Miyajima, 2007). This diverse market for corporate control has prompted unique structural barriers for each country such as the size of equity markets. Hostile bids are, in fact, feasible only in the case of listed firms and in Italy, for instance, the number of such companies is quite limited. Moreover, this market for corporate control has created technical barriers through restrictions on the transferability of shares and on voting rights. In the Italian case, pyramidal groups (where independent firms are controlled by the head of the group through a chain of ownership relations) have provided protection against unfriendly acquisition attempts (Bianco and Casavola, 1999). In recent years, M&A activity has increased noticeably within the Continental European context because of deregulation of markets in sectors that were once strongly regulated or through regional integration of markets (EU integration) with the purpose of facilitating restructuring or creating new growth opportunities (Goergen et al, 2005). Furthermore, legal changes have stimulated takeovers through the liberalization of share swaps, spin-offs and holding companies. Gradual increases in the availability of finance have also made a relevant contribution (Jackson and Miyajima, 2007). As a matter of fact, the highest ever was reached in 2006, with Europe targets accounting for 1.6 trillion US dollars. Particularly, the enormous amount of cross-border deals has been the expression of new frontiers for companies operating all over the world (Martynova and Renneboog, 2008).

Structure of the Dissertation

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