7. Concluding discussion
7.3. Further research
Subsequently, aspects of the conducted research will be presented with a discussion of potential relevant improvements and supplements to this study. Firstly, with an interest in the effects of downturn characteristics on the value creation generated by M&As, several important and unexpected result have been discovered. However, as the research process has progressed, the authors have been made aware of the value of also analyzing M&As during upturns. This would enable a comparative study, not only indicating whether or not M&As are value creating in downturns, but rather when in a commodity cycle M&As create the most value. Thus, a comparative study could create a more nuanced picture of M&As as a strategic rationale, and facilitate dynamic decision-making.
Additionally, a purpose of this study has been to uncover the characteristics that management should be aware of in the process of strategizing M&As in downturns. However, we would advise further research of how managers may leverage the results of this study. Implicitly, uncovering how M&A-strategizing may be optimized based on the dynamics of industry cyclicality.
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In order to test the different deal characteristics and economic rationales, necessary proxy coefficients have been determined. These proxies are based on methods of previous research, as well as the authors’ own opinions. However, proxies may cause a potential validity concern. This is particularly relevant in the tests of the free cash flow hypothesis, using CFO/assets and Tobin’s Q ratio. Even though these ratios are often used in previous literature, determining the best proxies for free cash flow is a topic that could benefit from being further researched. Additionally, measuring pre-announcement performance with the market-to-book ratio also imply some uncertainty, especially concerning industry variations. Due to the lack of access to industry-specific market-to-book ratios, we chose to only focus on the continuous variable of MTB. Therefore, we also suggest further research on the optimization of an indicator that better represent pre-announcement performance.
The focus of this study has involved companies related to commodity industries, as these industries experience significant and traceable downturns. Overall, the results we have found are assumed to have informational value also for other industries experiencing downturns. However, we acknowledge that the companies in focus might have significant traits that potentially make the results incomparable to other industries. A suggestion for further research is therefore to test the assumptions of this study on different industries, thus verifying the external validity of the results. Additionally, the definition of downturns rest on our own assumptions. In combination with other defined selection criteria, several transactions are excluded from the dataset. Even though the selection criteria are based on the authors’ best intuition, they are also in line with relevant theories and empirical research within the same area, thus limiting potential internal validity issues. However, these criteria may be too strict, indicated by a relatively small dataset. Therefore, challenging the generalizability of this study by easing the selection criteria, hence testing the external validity, would be of significant interest.
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Appendix
List of appendices
Appendix 1 Overview of bidder deals included in the final sample Appendix 2 Overview of target deals included in the final sample
Appendix 3 Qualitative and quantitative assessment of industry downturns Appendix 4 Overview over indices applied in market models
Appendix 5 Robustness check of the market model
Appendix 6 Plotted regression errors to check for serial correlation in market models Appendix 7 Summary of robustness tests on cross-sectional regressions
Appendix 8 Description of control variables
121
Appendix 1: Overview of bidder deals included in the final sample Announcement
date Bidder name Industry Country
Method of payment
Strategic motive
CAR (-1, 1) 26-01-1998 TRANSCANADA CORP Energy Canada Stock Diversified -0,7%
11-08-1998 BP PLC Energy United
Kingdom Stock Focused 2,6%
01-12-1998 EXXON Energy United
States Stock Focused -3,3%
27-10-2008 BASF SE Energy Germany Cash Focused -2,5%
13-10-2005 OCCIDENTAL
PETROLEUM CORP Energy United
States Mixed Focused -8,6%
15-11-2005 THORESEN THAI
AGENCIES PCL Energy Thailand Cash Diversified -0,5%
12-12-2005 CONOCOPHILLIPS Energy United
States Mixed Focused -10,9%
01-02-2006 ASSAM COMPANY LTD Energy India n.a. Focused -3,4%
14-06-2006 BUMI RESOURCES TBK,
PT Energy Indonesia Stock Diversified 0,3%
20-06-2006
CHINA PETROLEUM &
CHEMICAL CORPORATION
Energy Canada n.a. Diversified 1,2%
08-09-2006 MOL MAGYAR OLAJ- ES
GAZIPARI NYRT Energy Hungary Cash Diversified -2,2%
11-02-2009 EGDON RESOURCES PLC Energy United
Kingdom Stock Focused 35,0%
23-07-2008 PENGROWTH ENERGY Energy Canada Stock Focused -8,1%
01-08-2008
NEFTEGAZOVAYA KOMPANIYA SLAVNEFT
OAO
Energy Russia Cash Diversified 20,1%
26-08-2008 OIL & NATURAL GAS
CORP LTD Energy India Cash Focused -3,6%
27-10-2014 OPHIR ENERGY PLC Energy United
Kingdom Cash Focused -5,8%
08-12-2008 SAN MIGUEL
CORPORATION Energy Philippines Cash Diversified -1,0%
16-02-2009 DANA PETROLEUM Energy United
Kingdom Cash Focused 5,7%
16-06-2014 WILLIAMS COMPANIES
INC., THE Energy United
States Cash Diversified 20,7%
29-09-2014 ENCANA CORP Energy Canada Cash Focused 0,8%
13-10-2014 GAS NATURAL SDG SA Energy Spain Cash Diversified 0,8%
04-12-2014 FREEHOLD ROYALTIES
LTD Energy Canada Cash Focused -1,8%
16-12-2014 REPSOL SA Energy Spain Cash Focused -2,4%
122
23-12-2014 ANDES ENERGIA PLC Energy United
Kingdom Cash Focused 5,7%
01-04-2015 DONGSUNG CORP Energy South Korea Stock Diversified 2,6%
17-02-2015 CARDINAL ENERGY LTD Energy Canada Cash Focused 0,9%
08-04-2015 ROYAL DUTCH SHELL
PLC Energy Netherlands Mixed Focused -1,9%
11-05-2015 NOBLE ENERGY INC Energy United
States Stock Focused -4,6%
15-05-2015 DAYANG ENTERPRISE
HOLDINGS BHD Energy Myanmar Cash Diversified -0,5%
26-10-2015 WESTERN REFINING INC Energy Canada Mixed Focused -4,3%
03-12-2015 JX HOLDING Energy Japan Stock Diversified 3,3%
04-01-2016 TATNEFT IMENI VD
SHASHINA PAO Energy Russia Cash Diversified 2,6%
03-02-2016
PETROVIETNAM GAS JOINT STOCK CORPORATION
Energy Vietnam Cash Diversified 3,7%
07-04-1998 VITERRA INC. Agriculture Canada Stock Diversified -4,1%
11-05-1998 PHARMACIA LLC Agriculture United
States Stock Diversified 1,6%
02-11-1999 FROMAGERIES BEL SA Agriculture France n.a. Focused 1,8%
13-12-1999 GRAINCORP Agriculture Australia Stock Diversified 6,9%
06-09-2000 SUIZA FOODS
CORPORATION Agriculture United
States Mixed Focused 4,5%
13-09-2000 BUNGE ALIMENTOS Agriculture Brazil Mixed Diversified -0,2%
29-06-2001 SUEDZUCKER AG Agriculture Germany Cash Focused -4,1%
04-08-2004 MITSUI SUGAR CO LTD Agriculture Japan Stock Focused -0,2%
01-11-2004 WELSPUN INDIA LTD Agriculture India Stock Focused -0,4%
10-11-2004
RAJASTHAN SPINNING AND WEAVING MILLS
LTD
Agriculture India n.a. Focused 2,7%
03-02-2005 COST EXCHANGE PTY. Agriculture Australia Cash Focused -1,0%
19-06-2008 OLAM INTERNATIONAL Agriculture Singapore Cash Focused 2,8%
17-09-2008 SAJODONAONE CO. LTD. Agriculture South Korea Stock Focused 18,2%
22-01-2010 LANKEM CEYLON PLC Agriculture Sri Lanka Cash Focused 6,6%
27-05-2010 WILMAR
INTERNATIONAL Agriculture Singapore Cash Diversified 0,5%
11-07-2011 PARAMOUNT SPINNING
MILLS LTD Agriculture Pakistan Stock Focused 0,6%
01-08-2011 INDOFOOD AGRI
RESOURCES LTD Agriculture Singapore n.a. Focused 0,5%
123
19-08-2011 ADECOAGRA Agriculture Argentina Cash Focused -1,9%
03-10-2011 TERRA MAURICIA LTD Agriculture Mauritius n.a. Focused -1,6%
28-11-2011 CHAROEN POKPHAND
FOODS PCL Agriculture Thailand Mixed Focused 3,4%
21-03-2013 UAC OF NIGERIA PLC Agriculture Nigeria n.a. Diversified 0,0%
02-10-2013 IOI CORP BHD Agriculture Malaysia Cash Diversified 0,6%
07-11-2013 KUALA LUMPUR KEPONG
BHD Agriculture Malaysia Cash Diversified 0,7%
30-05-2014 PAN PACIFIC
CORPORATION Agriculture Vietnam Cash Diversified -3,8%
09-10-2014 SIME DARBY BHD Agriculture Malaysia Cash Diversified 0,2%
03-02-2015 KIDO GROUP
CORPORATION Agriculture Vietnam Cash Focused -3,8%
05-02-2015 VINASEED Agriculture Vietnam Cash Focused -1,5%
12-02-2015 HARIM CO. LTD. Agriculture South Korea Mixed Diversified 7,4%
02-03-2015 PIONEERS HOLDING
COMPANY SAE Agriculture Egypt Cash Diversified 3,2%
30-03-2015 ARCHER DANIELS Agriculture South Korea n.a. Focused 1,9%
19-05-2015 FAUJI FERTILIZER BIN
QASIM LTD Agriculture Pakistan Cash Diversified 0,1%
04-08-2015 BIEN HOA SUGAR JSC Agriculture Vietnam Stock Focused -0,6%
11-09-2015 SAMYANG CORP Agriculture South Korea Stock Focused 23,0%
19-04-2011 TERRA SANTA AGRO
GROUP Agriculture Brazil Stock Diversified -2,3%
27-09-2012 BAYWA AG Agriculture Germany Cash Diversified 2,0%
04-06-2007 NORTHWESTERN
MINERAL VENTURES INC Metals Canada Cash Focused 18,8%
27-06-2007 COMPAÑÍA MINERA
AUTLÁN SA DE CV Metals Mexico n.a. Diversified -2,5%
03-07-2007 TECK RESOURCES LTD Metals Canada Mixed Focused 1,4%
13-12-2007 ARCELORMITTAL SA Metals Luxembourg Cash Focused 0,6%
31-01-2008 BHAGYANAGAR INDIA
LTD Metals India n.a. Diversified -0,9%
12-05-2008 HILLGROVE RESOURCES
LTD Metals Australia Stock Focused 4,0%
08-02-2008 NUCOR CORP Metals United
States Stock Diversified 5,1%
23-06-2008 HUDBAY MINERALS INC Metals Canada Mixed Focused -10,3%
15-08-2008 KALGOORLIE BOULDER
RESOURCES LTD Metals Australia Stock Focused 24,8%
02-09-2008 PINETREE CAPITAL LTD Metals Canada Cash Diversified -3,0%
124
10-11-2008 COMPANIA MINERA
MILPO SAA Metals Peru n.a. Focused 19,7%
07-03-2011 DIA BRAS EXPLORATION
INC. Metals Canada Cash Focused 6,8%
15-06-2011 NYRSTAR NV Metals Belgium Cash Focused 11,6%
07-07-2011 POSCO CO., LTD Metals South Korea Cash Focused 1,3%
30-09-2011 MMG LTD Metals Canada Cash Diversified -3,4%
07-02-2012 GLENCORE PLC Metals Switzerland Stock Focused -10,9%
28-03-2012 NIPPON STEEL
CORPORATION Metals Japan n.a. Focused -0,5%
28-03-2012 JXTG HOLDINGS INC Metals Japan Cash Focused -1,6%
14-05-2012 METALS X LTD Metals Australia Stock Focused -16,9%
15-06-2012 TATA STEEL LTD Metals India Cash Focused -0,6%
17-12-2007 OZ MINERALS HOLDINGS
LTD Metals Australia Cash Focused 0,4%
28-11-2012 FIRST QUANTUM
MINERALS LTD Metals Canada Mixed Focused -6,7%
06-02-2013 RELIANCE STEEL &
ALUMINUM CO Metals United
States Cash Diversified 7,2%
23-04-2012 MINSUR SA Metals Peru n.a. Diversified 1,1%
24-09-2007 ORICA LTD Metals Australia Cash Diversified 5,7%
19-08-2013 SESA GOA LTD Metals India n.a. Focused 11,3%
09-03-2015 ALCOA CORP Metals United
States Stock Focused -1,4%
13-05-2014 HC2 HOLDINGS INC. Metals United
States Cash Diversified 2,2%
29-08-2012 UACJ CORP Metals Japan Stock Focused 1,9%
16-12-2014 HYUNJIN MATERIALS CO.,
LTD Metals South Korea Cash Focused 11,6%
09-07-2015 DUNDEE CORPORATION Metals Canada Cash Diversified 5,3%
03-07-2007 ALUMINUM CORP OF
CHINA LTD Metals China Mixed Focused 3,7%
06-11-2007 KATANGA MINING LTD Metals Canada Stock Focused 30,6%
10-01-2012 EXXARO RESOURCES LTD Metals South Africa Cash Focused -2,4%
The table above presents bidder deals included in the final dataset, after filtering them through selection process one to three. The table portrays the date of announcement, name of the bidder, country of origin for the bidder, mean of payment, the financial health of the target, the strategic motive for the deal, as well as the cumulative abnormal return (CAR) obtained by the bidder in the 3-day event window.
Source: Zephyr, Bloomberg and Mergermarket
125
Appendix 2: Overview of target deals included in the final sample Announcement
date Bidder name Industry Country Method of
payment
Strategic motive
CAR (-1, 1) 07-11-2013 EQUATORIAL PALM OIL
PLC Agriculture Untied
Kingdom Cash Diversified 12,4%
02-10-2013 UNICO-DESA
PLANTATIONS BHD Agriculture Malaysia Cash Diversified 3,2%
11-09-2015 SUN-II GLUCOSE CORP.
LTD. Agriculture South
Korea Stock Focused 9,6%
09-11-2011 MSF SUGAR LTD Agriculture Australia Cash Diversified 30,6%
26-12-2012 TRADEWINDS M BHD Agriculture Malaysia Cash Focused 20,6%
19-05-2015 NOON PAKISTAN LTD Agriculture Pakistan Cash Diversified 6,2%
12-02-2015 PAN OCEAN CO., LTD Agriculture South
Korea Cash Diversified 17,4%
05-02-2015 SOUTHERN SEED
CORPORATION Agriculture Vietnam Cash Focused 0,0%
30-05-2014 NATIONAL SEED JOINT
STOCK COMPANY Agriculture Vietnam Cash Diversified 6,4%
11-07-2011 GULISTAN SPINNING
MILLS LTD Agriculture Pakistan Stock Focused 3,4%
25-11-2011 C.P. POKPHAND CO., LTD Agriculture Hong Kong Mixed Focused 7,6%
21-03-2013 LIVESTOCK FEEDS PLC Agriculture Nigeria n.a. Diversified -3,5%
22-01-2010 CW MACKIE PLC Agriculture Sri Lanka Cash Focused -5,1%
19-06-2008 PALMCI SA Agriculture Ivory Coast Cash Focused 2,2%
01-05-2012 IMPERIAL SUGAR CO Agriculture United
States Cash Diversified 56,3%
08-04-2004 TAITO CO LTD Agriculture Japan Stock Focused -5,5%
11-05-1998 DEKALB GENETICS CORP Agriculture United
States Cash Diversified 24,4%
09-10-2014 NEW BRITAIN PALM OIL
LTD Agriculture Malaysia Cash Diversified 74,5%
30-10-2001 CERESTAR Agriculture France Cash Focused 11,9%
04-08-2015 NINH HOA SUGAR JSC Agriculture Vietnam Stock Focused -3,2%
27-10-2014 SALAMANDER ENERGY
PLC Energy United
Kingdom Stock Focused 16,9%
01-04-2015 HOSUNG CHEMEX CO.
LTD. Energy South
Korea Stock Diversified 4,1%
08-04-2015 BG GROUP LTD Energy United
Kingdom Mixed Focused 34,2%
16-12-2014 TALISMAN ENERGY INC Energy Canada Cash Focused 67,7%
126
29-09-2014 ATHLON ENERGY INC Energy United
States Cash Focused 26,3%
26-10-2015 NORTHERN TIER ENERGY
LP Energy United
States Mixed Focused 8,5%
17-02-2009 BOW VALLEY ENERGY
LTD Energy Canada Cash Focused 80,4%
03-12-2015 TONENGENERAL SEKIYU
KK Energy Japan Stock Diversified 0,4%
23-07-2008 ACCRETE ENERGY INC Energy Canada Stock Focused 9,0%
27-10-2008 WINTERSHALL NORGE
AS (REVUS ENERGY ASA) Energy Norway Cash Focused 113,5%
14-06-2006 ENERGI MEGA PERSADA
TBK, PT Energy Indonesia Stock Diversified 2,1%
21-12-2005 SARATOVNEFTEGAZ
OAO Energy Russia n.a. Focused -0,8%
26-07-2006 GAIL (INDIA) LTD JSC Energy India n.a. Focused 9,3%
08-12-2008 PETRON CORPORATION Energy Philippines Cash Diversified 30,7%
14-11-2014 COMPANIA GENERAL DE
ELECTRICIDAD SA Energy Chile Cash Diversified 1,0%
15-05-2015 PERDANA PETROLEUM
BHD Energy Myanmar Cash Diversified -0,9%
15-01-2016 SVOGL OIL GAS AND
ENERGY LTD Energy India n.a. Diversified -19,6%
04-12-2014 ANDERSON ENERGY LTD Energy Canada Cash Focused 24,6%
17-02-2015 PINECREST ENERGY INC. Energy Canada Cash Focused -99,5%
03-02-2016 CNG VIET NAM JOINT
STOCK COMPANY Energy Vietnam Cash Diversified -1,8%
23-12-2014 INTEROIL EXPLORATION
AND PRODUCTION ASA Energy Norway Cash Focused -0,3%
04-01-2016 NIZHNEKAMSKSHINA
PAO Energy Russia Cash Diversified 1,4%
01-12-1998 MOBIL CORP Energy United
States Stock Focused -0,9%
11-08-1998 AMOCO (BP CORP NORTH
AMERICA INC) Energy United
States Stock Focused 16,6%
26-01-1998 NOVA CORP/OLD Energy Canada Stock Diversified 3,2%
13-10-2005 VINTAGE PETROLEUM
INC Energy United
States Mixed Focused 20,5%
26-08-2008 IMPERIAL ENERGY CORP
PLC Energy United
Kingdom Cash Focused -4,8%
11-05-2015 ROSETTA RESOURCES
INC Energy United
States Stock Focused 28,4%
12-12-2005 BURLINGTON
RESOURCES INC Energy United
States Mixed Focused 8,8%