Motives for and Consequences of Minority Equity Purchases

117 Pages·2010·0.536 MB·German

by  Friedel Drees (auth.)

Friedel Drees
Motives for and Consequences
of Minority Equity Purchases
GABLER RESEARCH
EBS Forschung
Schriftenreihe der European Business School (EBS)
International University · Schloss Reichartshausen
Herausgegeben von
Univ.-Prof. Ansgar Richter, PhD
Band 76
Die European Business School (EBS) – gegründet im Jahr 1971 – ist Deutschlands
älteste private Wissenschaftliche Hochschule für Betriebswirtschaftslehre im Univer-
sitätsrang. Dieser Vorreiterrolle fühlen sich ihre Professoren und Doktoranden in For-
schung und Lehre verpfl ichtet. Mit der Schriftenreihe präsentiert die European Busi-
ness School (EBS) ausgewählte Ergebnisse ihrer betriebs- und volkswirtschaftlichen
Forschung.
Friedel Drees
Motives for and Consequences
of Minority Equity Purchases

With a foreword by Prof. Dr. Dirk Schiereck
RESEARCH
Bibliographic information published by the Deutsche Nationalbibliothek
The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografi e;
detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Dissertation European Business School, International University Schloss Reichartshausen,
Oestrich-Winkel, 2009
D 1540

1st Edition 2010
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V
Foreword

Share price reactions to the announcement of (partial) corporate acquisitions have ex-
tensively been analysed in capital market research, in particular in the context of event
studies. Minority equity purchases have also been examined before, but never as com-
prehensively or with a special focus on the underlying explanatory variables as in this
doctoral thesis.
Moreover, previous empirical research has largely focused on the U.S. capital market,
which shows significant differences to most European countries with regard to the regu-
latory framework of minority shareholder protection. Consequently, the transatlantic
evidence can only be transferred to the institutional and regulatory framework in Europe
to a very limited extent. There are only very few extensive insights for the German capi-
tal market and comparative studies in a European context. It is all the more welcome that
this doctoral thesis has not only focused on the U.S., but also on German and European
markets. It thus allows differentiated insights into highly distinct systems of corporate
governance.
This doctoral thesis addresses an important research gap and stands out due to its
special attention to detail and accuracy. Its primary objective is the empirical explanation
of wealth effects in corporations with new minority equity holders. The objective insights
derived in this thesis will serve as a well-grounded basis for the decision making of insti-
tutional investors, corporate practitioners, and M&A professionals.
In this doctoral thesis, Mr. Drees has optimally achieved all the set objectives – his
work contains a great number of highly interesting results and is written in a way which
the reader will find very enjoyable. I wish his thesis the wide circulation it deserves.

Professor Dr. Dirk Schiereck
V II
Acknowledgements

My deepest gratitude goes to my advisor Dirk Schiereck for his mentoring and support
during the last 2 years. His detailed and constructive feedback helped me to shape my
research ideas and to keep me on track. For his support and encouragement
– academically and personally – I would like to express my sincere gratitude. It was a
pleasure being grated the opportunity to work with you!
I also thank Marcel Tyrell for accepting the role as a co-advisor. He provided invaluable
ideas and feedback, especially with regard to the modelling and economic interpretation
of the concept of “corporate relatedness” which I apply in the last chapter of my disserta-
tion.
Without naming each individual, I am grateful to the various other supporters of my the-
sis. I especially appreciated the feedback and comments from my fellow PhD students,
from my former colleagues and friends at Bain & Company, and from numerous anony-
mous reviewers at journals.
Last but not least, I would like to thank my beloved parents, Franz and Beatrix, who al-
ways provided me with their unequivocal support and gifted me with the traits and
education that enabled me to accomplish this academic endeavour.

Friedel Drees
IX
Table of Contents

List of Tables & Figures ............................................................................................... XI
List of Abbreviations ................................................................................................. XIII
List of Symbols ............................................................................................................. XV
1 Introduction .............................................................................................................. 1
2 New Outside Blockholders, Performance, and Governance in Germany ........... 9
2.1 Introduction ............................................................................................................ 9
2.2 Literature Review ................................................................................................. 11
2.2.1 General Considerations with Regard to the Potential Wealth
Effects of Block Purchases ............................................................................ 11
2.2.2 Empirical Evidence on The Effects of Block Purchases in Germany ........... 13
2.3 Data and Methodology ......................................................................................... 14
2.3.1 Sample Selection ........................................................................................... 14
2.3.2 Block Characteristics ..................................................................................... 17
2.3.3 Target Characteristics .................................................................................... 20
2.3.4 Method of Measuring Abnormal Returns ...................................................... 22
2.4 Results .................................................................................................................. 22
2.4.1 Announcement Effects ................................................................................... 22
2.4.2 Determinants of Abnormal Returns ............................................................... 25
2.5 Conclusion and Outlook ....................................................................................... 28
3 Equity Ownership, Agency Problems and Shareholder Wealth:
Understanding the Unique Role of Corporate Block Owners ............................ 31
3.1 Introduction .......................................................................................................... 31
3.2 Literature Review ................................................................................................. 34
3.2.1 Theoretical Benefits of Corporate Block Equity Ownership ......................... 34
3.2.2 Empirical Evidence on the Wealth Effects of Corporate Minority
Block Purchases ............................................................................................. 36
3.3 Data and Methodology ......................................................................................... 38
3.3.1 Corporate Block Purchases ............................................................................ 38
3.3.2 Factors that Explain the Value Creation from Corporate Block
Equity Purchases ............................................................................................ 42
3.3.2.1 Industry Characteristics ..................................................................... 44
X
3.3.2.2 Product Market Relationship Related Characteristics ....................... 46
3.3.2.3 Transaction Characteristics ............................................................... 47
3.3.2.4 Target Financial Characteristics ........................................................ 49
3.3.3 Method of Measuring Abnormal Returns ...................................................... 52
3.4 Results .................................................................................................................. 53
3.4.1 Univariate Analysis ....................................................................................... 53
3.4.2 Cross-Sectional Regression Analysis ............................................................ 59
3.5 Conclusions .......................................................................................................... 65
4 Minority Equity Ownership and Value Creation:
The Role of Corporate Relatedness ...................................................................... 67
4.1 Introduction .......................................................................................................... 67
4.2 Hypotheses and Related Literature ...................................................................... 70
4.3 Data and Methodology ......................................................................................... 72
4.3.1 Corporate Block Purchases ............................................................................ 72
4.3.2 Measuring Corporate Relatedness ................................................................. 76
4.3.2.1 Benchmark Input-Output Accounts .................................................. 76
4.3.2.2 Method of Measuring Vertical Relatedness ...................................... 77
4.3.2.3 Method of Measuring Complementarity ........................................... 80
4.3.3 Method of Measuring Abnormal Returns ...................................................... 82
4.4 Results .................................................................................................................. 82
4.4.1 Univariate Analysis ....................................................................................... 82
4.4.2 Cross-Sectional Regression Analysis ............................................................ 86
4.4.3 The Effect of Secondary Segments ................................................................ 91
4.5 Conclusion ............................................................................................................ 96
5 Concluding Remarks .............................................................................................. 99
References .................................................................................................................... 103
X I
List of Tables & Figures

Table 2–1: Sample Selection .......................................................................................... 16
Table 2–2: Distribution of Transactions by Year and Block Type ................................. 16
Table 2–3: Sample Description of Block Characteristics ............................................... 19
Table 2 –4: Sample Description of Target Characteristics .............................................. 21
Table 2–5: Excess Returns by Acquiring Block Type .................................................... 23
Table 2–6: Determinants of Cumulative Average Abnormal Target Returns ................ 26
Table 3–1: Sample Selection .......................................................................................... 40
Table 3 –2: Distribution of Block Purchases by Year ..................................................... 41
Table 3–3: Sample Transactions by Home Country of Target and Acquirer ................. 41
Table 3–4: Distribution of Acquiring and Target Firms by Industry and Year .............. 42
Table 3–5: Variable Description ..................................................................................... 43
Table 3–6: Descriptive Statistics of Continuous and Binary Variables ......................... 51
Table 3–7: Excess Returns around Block Equity Purchases by Corporations ............... 55
Table 3–8: Determinants of Cumulative Average Abnormal Target Returns ................ 60
Table 3–9: Determinants of Cumulative Average Abnormal Acquirer Returns ............ 64
Table 4–1: Sample Selection .......................................................................................... 75
Table 4 –2: Distribution of Block Purchases by Year ..................................................... 75
Table 4–3: Distribution of Block Purchases by Industry ................................................ 76
Table 4–4: Calculation of Vertical Relatedness and Complementarity Coefficients ..... 79
Table 4–5: Sample Description ...................................................................................... 81
Table 4–6: Excess Returns Around Block Equity Purchases by Corporations .............. 83
Table 4–7: Mean Difference Test of Excess Returns ..................................................... 85
Table 4–8: Variable and Source Description .................................................................. 8(cid:2)
Table 4 –9: Determinants of Cumulative Average Abnormal Combined
Entity Returns based on Primary Industry Classification ............................ 8(cid:3)
Table 4 –10: Descriptive Statistics of Control Sample .................................................... 92
Table 4–11: Excess Returns around Block Purchases for Control Sample .................... 93
Table 4–12: Mean Difference Test of Excess Returns for Control Sample ................... 94
X II
Table 4–13: Determinants of Cumulative Average Abnormal Combined
Entity Returns for Control Sample ............................................................. 95

Figure 2–1: Cumulative Average Abnormal Target Returns ......................................... 24
Figure 3–1: Cumulative Average Abnormal Returns ..................................................... 56