Valuation of takeovers

Abstract

Takeovers have become a frequent feature of business. Due to their frequency and size, they have potentially considerable implications for the companies involved and their stakeholders.This thesis focuses on valuation problems in relation to takeovers. It comprises an empirical study of a number of Swedish corporate acquisitions, and a comprehensive survey of previous research on the outcome of takeovers.In the empirical study, the capital budgeting approach serves as the frame of reference for valuation. The cash flow consequences of seven takeovers are studied over a maximum period of five postmerger years. Special attention is given to the characteristics of incremental cash flows, the prospect of separating them from cash flows arising from other decisions taken by the merging companies, and the temporal relation between incremental cash flows and incremental accounting income.The comprehensive survey consists of a thorough description of previous research attempting to answer the questions: ‘Are corporate acquisitions successful?’ and ‘Which takeovers are successful and which are failures?’. While the main focus is on studies using financial accounting data, studies relying on stock market and interview data are also discussed.This thesis carries implications for the way takeovers are evaluated and accounted for, and contributes to the existing body of knowledge regarding the outcome of corporate acquisitions.

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