What Drives the Control Premium? Evidence from BRIC Countries

Abstract

The literature on M&As provides ample evidence for the variability of premiums paid in M&A deals over time and in different types of deals. Most work has been done on the data from developed markets. Using a sample of M&A deals in the largest emerging markets (BRIC) for 2000--2015, we examine three types of factors (acquirer characteristics, target characteristics, deal characteristics). To measure the premium, the event study method is used; therefore the data on cumulative average abnormal returns (CAAR) is adjusted to the market movements in each respective country. We focus on three levels of acquired stakes (>25%, >50%, and 100%). The study contributes to a deeper understanding of the differences in the size of premiums among the countries and the interaction of the main determinants which influence the magnitude of the premium. The regression results document positive drivers of the size of the premium including the percentage of the stake and industry relatedness. Besides these stylized determinants, the premium increases if the deal is made in a crisis year and by a domestic bidder. The negative determinants include the target size, its financial leverage, and the pre-bid stake of the acquirer (toehold).