Faculty of Economics and Business
Specialization: Finance & Organization
Bachelor thesis
The effects of the financial crisis on abnormal
returns in the brewery industry
Author:
Supervisor:
Jeroen de Zoete
Ieva Sakalauskaite
Amsterdam
29 June, 2015
Statement of Originality
This document is written by Student Jeroen de Zoete who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
ABSTRACT
This research examines whether the financial crisis has had a negative effect on the abnormal returns of acquiring breweries earned from a merger and
acquisition announcement. This is determined using an event study followed by a multiple regression model, using data between January 1998 and December 2010. It is expected that the financial crisis has a significant negative effect on the abnormal returns earned by shareholders of the acquiring breweries for the market as whole. Furthermore, it is expected that the financial crisis resulted in significant lower abnormal returns earned from M&A announcement in emerging markets. This study finds no significant evidence that the financial crisis has a significant negative effect on the abnormal returns earned by bidding
shareholders for the market as whole. However, the second hypothesis is
significant supported by the obtained results and the financial crisis resulted in significant lower abnormal returns earned from emerging targets.
TABLE OF CONTENTS
Abstract
Table of Contents
1. Introduction 1
2. Literature Review 3
2.1 The brewing industry 3
2.2 The financial crisis 5
2.3 Emerging markets 6
2.4 Hypothesis 8
3. Empirical research 9
3.1 Data and Sample Selection 9 3.2 Descriptive statistics 10
3.3 Methodology 12
3.4 Regression and Variables 14 4. Empirical results and discussion 15
5. Conclusion 18
References Appendix
1
1. INTRODUCTION
Over the last decades, one of the most important developments has been the continuously growing internationalization of economic activities. Despite its long heritage as a local industry, the brewing industry is now also becoming a global market governed by cross-border takeovers and growth through acquisitions (Ebneth and Theuvsen, 2007). The aggressive merger and acquisition policy by the now dominating brewing groups has completely changed the competition environment in the global brewing industry. In 1998 the ten largest breweries had a combined market share of 37.6%, which as of 2010 increased to 74.1% . In 2014 the market share of the biggest four alone, AB Inbev, Heineken, SABMiller and Carlsberg, was even 70.4% of the total market.
The global financial crisis began in the summer of 2007 and changed the landscape for M&A in the brewing industry. The brewing industry was challenged by the recession as consumers across Europe and America had less income to consume. They excluded mainstream beer brands from their baskets and visits to bars and restaurants became less frequent because of the expenses. Earnings for the top breweries fell and the outlook for the earnings growth of the Western breweries looked somber as the mature markets accounted for the biggest part of their revenue, which were deeply tangled in recession. Meanwhile, the emerging markets were growing quickly as the middle class grew and beer became an affordable option but its overall contribution to the earnings of the bi ggest breweries were modest. Given the above, the natural indication for their investors was to sell and move on but the opportunity of growing in emerging markets, kept them from selling their shares. (Madsen et al., 2012). More than ever before, breweries are implementing strategies that include gaining access into new geographies in response to the low growth expectations and declining revenues in their home country regions (Grave et al., 2012).
The greater part of existing literature on the effects of M&A announcements on shareholder value focuses on banking and other financial service industries. There is hardly any literature about these effects in different industries and how their stocks react to it. As stated before, the brewery industry has experienced a sharp increase in M&A activity in the last two decades and is thus a unique opportunity to study different explanations for share price movements. Several studies have been conducted on share -price movements after M&A announcements in the brewery industry, such as the study
2
of Ebneth and Theuvsen in 2007, but an analysis on the effects of the financial crisis is missing, despite its relevance for finance and its big impact on stakeholders of brewing companies. Merger and acquisition activity due to the financial crisis and how and whether they create value to the shareholders is an interesting question.
Therefore, this thesis will analyze what the effects of the recent financial crisis on the abnormal returns of acquiring breweries earned from a merger and acquisition announcements are. Through empirical research an answer is given on how stock-holders returns were affected by low growth expectations and declining revenues caused by the financial crisis in the brewery industry. Datastream and the Zephyr database are used to perform an event study, which determines the cumulative abnormal returns for European acquiring breweries in the period 1998 until 2010.
3
2. LITERATURE REVIEW
2.1 THE BREWING INDUSTRY
Beer is an alcoholic beverage that has been enjoyed by the people of Europe for several thousands of years. Even though the beer culture cross Europe is considerably different, with various kind of beers and drinking customs, it is an important part of the culture, legacy and nutrition in every European country (Madsen et al., 2011). Traditionally, local markets sold the beer to the community and the local breweries fulfilled the demand for good quality beer. Since the beginning of the 1980s the west became mature and a highly competitive market. The breweries experienced flat or even declining per capita beer consumption. Since then, the brewing industry has developed from an industry that concentrated on domestic markets to one that participates in the global market (Howard, 2014).
The biggest changes in the structure of the global brewery industry were political when China and India opened their doors and the iron curtain broke down in Europe and enlarged the beer market to a real world market (Mehta and Schiereck, 2012). The economic and political liberalization presented additional growth opportunities for the firms and started a battle between the top breweries. The breweries started expanding into these new geographic areas in order to increase their profits (Mehta and Schiereck, 2012).
The now leading breweries have followed different internationalization strategies to these developments because they weighted firm growth and M&A differently. Larimo et al. (2006) stated that, the strategy of the leading European breweries was with major focus on extensive international growth through acquisitions. The foreign expansion of West European breweries targeted Central and Eastern Europe but also some other parts of the world. Especially the CEE region played a significant role for the West European breweries. However, The foreign expansion of American breweries was with major focus on licensing agreements covering production, distribution and commercialization activities instead of acquisitions.
While most of the early investments were relatively small in volume, there have been some exceptions such as the acquisitions by Interbrew and SAB in Hungary in 1991
4
and 1992 (Larimo et al., 2006). Over the years, the value of individual investments increased. For example, the acquisition of Bravo international by Heineken exceeded 400 million euros.
Economic, political and technological changes near the turn of the century have greatly accelerated processes of consolidation and globalization in the industry that were already occurring in the previous years. Some of the most significant involve recent trade agreements (Ascher, 2012). For example, the North American Free Trade Agreement (NAFTA) of 1994 removed tariffs on beer traded between the U.S., Canada and Mexico. This helped facilitate the merger between Molson and Coors to form Molson Coors in 2005 (Ascher, 2012).
The World Trade Organization (WTO) is facilitating increasing global dominance for the largest brewers as well. AWTO tribunal ruled against the government of India for levying excessive tariffs on beer imports, for example, and increased market access for foreign firms (Howard, 2014). After China joined the WTO, firms from Europe, Japan and the U.S. acquired Chinese breweries or established joint ventures with them. Formerly state owned breweries in Africa and the former Soviet Union have also been privatized in recent decades, with many sold to foreign-based breweries (Howard,2014).
The top firms and their subsidiaries have also moved closer to global dominance through technological advantages that have reduced costs and increased the effectiveness of their marketing relative to competitors (McCafferty and Bhuyan, 2012). Robotics and other automation technologies have been used to reduce labor costs, while information technologies have enabled just in time delivery and reduced storage costs (McCafferty and Bhuyan, 2012).
The largest beer firms are now able to exert more power, reinforce these trends and increase globalization and consolidation, resulting in the industry dominated by increasingly fewer firms. The industry is now dominated by the big four: Ab Inbev, SABMiller, Heineken and Carlsberg. As stated before, the global market share of the firms summed up to 70.4%. Just as in the soft drink industry, where Coca cola and Pepsi account for approximately three quarters of carbonated soft drink globally, the beer industry will edge closer to this model, but it is unlikely to fully reach it (Benson-Armer et al., 1999). While barriers to consolidation discussed above are likely to continue to erode, several important barriers remain. These include cultural barriers to global brands in emerging markets, and the rising consumer interest in varieties produced by smaller specialty brewers in mature markets (Benson-Armer et al., 1999).
5 2.2 THE FINANCIAL CRISIS
The recent global financial crisis officially started in December 2007 and ended in June 2009. This resulted in the burst of the housing bubble and the market collapsed. The stock markets incurred large security losses due to damaged investor confidence and lower credit availability. In May 2009 the S&P 500 had fallen 40% (Deaton, 2011). An additional effect of the crisis was the downturn of the international trade and a worldwide downturn of the economy. The U.S. and Europe experienced an increasing unemployment rate. The wealth of consumers was declining and they had less disposable income (Duchin et al., 2010). Thus when consumption decreased, breweries experienced a fall in revenues because consumers omitted the more mainstream beer brands. Beer is a luxury to the consumer and not essential for their physical survival. In almost all mature Western markets, total beer sales declined during the crisis.
SOURCE: BEER STATISTICS 2010
The 2009 report by Ernst & young illustrated how the economic downturn affected national markets. For example, the market for beer in the United Kingdom suffered a 7.2% decline in the third quarter of 2008, in comparison to the same quarter in 2007. The fall was the largest third-quarter decline for a decade. A fall of 1.8 million pints a day, approximately 1.02 million liters. The increasing decline in beer sales was a clear sign of a worsening economy, worried households and weakening spending. It also reduced the government’s tax income with almost £181 million, compared against the same period in 2007, despite the fact that beer taxes went up by 18% in 2008.
6
The financial crisis made M&A activity decline by 29% between 2007 and 2008, equaling $3.280bn in 2008 (Financial times, December 2008). Cernat-Gruici et al. (2009) observed a change in the amount of both completed and failed deals, before and during the financial crisis in Romania and other European countries. Their results are not aligned with the theoretical and empirical evidence that M&A markets decline during periods of crisis. They discovered that the market grew in volume during the crisis of which 30 per cent of the total number of deals from 2000–2009 were recorded between 2008 and 2009 period.
Martynova and Renneboog (2008) stated that a financial crisis or a big change in regulations can end merger and acquisition waves. This suggests that M&As are greatly determined by the overall economic environment. Despite the fact that worldwide merger and acquisition markets had a downturn in 2008, AB Inbev had its most expensive acquisition with the $52 billion purchase of Anheuser-Busch in the same year (Howard, 2014). Inbev’s sensational acquisition of AB was aided by the availability of credit that they received just before the economic downturn and little resistance from anti-trust regulators (Mehta and Schiereck, 2012).
2.3 EMERGING MARKETS
Markets can be classified as frontier, emerging and mature. Frontier markets are less advanced capital markets from the developing world and also known as pre-emerging markets. Emerging markets are nations that have a growing development and mature markets are already developed. M&A transactions in emerging markets offer opportunities that are different from developed markets (Berger, Pukthuanthong and Yang, 2011).
Kvint (2003) describes an emerging market as a society that emerges out of a dictatorship to a free market-oriented economy, with improving standards of living and high economic growth. The economies of China and India are considered to be the largest emerging markets in the world. The main attraction of emerging economies is their high economic growth and the corresponding expectation of rapidly increasing demand for consumer goods. Meyer and Thi Thu Tran (2006) argue that the great number of people, even if they are on low incomes, make the less developed parts of the world attractive to business.
7
However these markets present new challenges because of their less sophisticated institutional environment and the weak resources of local firms. It could be possible that the firms have to develop different strategies and new business models to attract the minority of wealthy customers in these area’s as well as the majority of the customers (Meyer and Thi Thu Tran, 2006). Western companies may underestimate the risks that come with making acquisitions in emerging markets. Compliance and integrity risks, such as corruption, money laundering and fraud, are among the biggest concerns for Western companies. Even if what companies offer and what host countries need is highly aligned, success is still far from assured. Elections and other political events, economic crisis and changes in social attitudes can disturb the best-laid plans in both emerging and mature markets (Henisz and Zelner, 2010).
Despite all the challenges companies face when they move into emerging markets these markets are still highly attractive, as stated before. Chari et al. (2010) found statistic higher abnormal returns round the announcement date when the target is from an emerging market. Chari et al. (2010) have several explanations for these positive abnormal returns. First, when the acquirer has a law system with better investor protection, it will react in higher announcement returns. Due to the fact that the targets have to implement the better governance system of the acquirer and that might drive up the cash flows of the target. Second, the announcement return is the highest when the target from an emerging market is acquirer by a company with high patent intensity in the industry.
8 2.4 HYPOTHESIS
This section describes the hypotheses that are based on the findings of the studies discussed in the literature review. Ar-loc (2010) showed that acquisition announcements have a negative wealth effects to the acquiring banks in times of economic downturn. As a financial crisis is a time of uncertainty , it is expected that investors are averse to all M&As during a financial crisis because of the associated risk with them. These assumptions are shaped in the following hypothesis:
Hypothesis 1 : The recent financial crisis had a significant negative effect on cumulative
abnormal returns for acquiring shareholders in the brewery industry.
Chari et al. (2004) found significant increases in the return of shareholders of biddings firms after acquisitions in emerging markets. Even though in emerging markets there are more opportunities for acquiring firms to create value than in mature markets, they also contain more drawbacks and risks that could destroy value for the shareholders. Especially during the financial crisis, these investments can by perceived as risky by shareholders. Therefore, it is expected that the financial crisis also resulted in lower abnormal returns earned from M&A announcements for emerging market investments.
Hypothesis 2 : The cumulative abnormal returns earned from M&A in emerging markets
for acquiring shareholders in the brewery industry were significantly lower during the financial crisis.
9
3 EMPIRICAL RESEARCH
3.1 DATA AND SAMPLE SELECTION
This study examines a sample of mergers and acquisitions performed during a non-crisis period and the global financial crisis. The bureau van Dijk Zephyr Databank is consulted to obtain the data on M&As, involving an acquirer from the brewer group for the period 1998-2010. Zephyr contains detailed information on numerous M&As. This database reports the names of the firms involved in the acquisition, the announcements dates, the deal type, SIC-code(s) and the transaction value. The annual reports of the breweries and their press releases are used to check the quality of the data and the accuracy of the Zephyr database as well as to collect information on announcements that are missing. Thompson Reuters Datastream is used to obtain the stock market data of the brewing industry and the market index data of the S&P500.
The final sample on M&A before and during the financial crisis and within emerging and mature markets consists of 96 merger and acquisition announcements. The periods 01/01/1998 – 30/06/2007 and 01/07/2007 – 31/12/2010 are the chosen periods which refer to a period before and during the financial crisis. The total number of M&A events is reduced by applying the following criteria:
The transaction was announced between January 1, 2000 and December 31, 2010;
At the time of the announcement, the acquiring company had active operations in the brewing industry.
The acquiring company has been listed for at least 210 trading days prior to the announcement of the transaction;
The information related to the event was publicly disclosed;
Acquisitions affected by disruptive events that occurred within the event period such as dividend announcements and management changes are disposed of;
10
For the last criteria an exception is made for events where the value is undisclosed. However, the acquirer needs to gain majority control over the target and the acquisition considerably enhanced the position of the brewer in the target country. The exception is made as otherwise an insufficient amount of events remained during the financial crisis. The second hypothesis uses additional information than the first hypothesis. In order to divide the sample into M&A in emerging markets and in mature markets, the separation between economies of the World Bank based on 2010 gross national income per capita is used. High income countries ($12.196 or more per capita) are classified as mature markets, while low and middle income countries ($12.195 or less per capita) are classified as emerging markets.
3.2 DESCRIPTIVE STATISTICS
Descriptive statistics helps defining the selected sample in different ways. It gives a more thoroughly explanation of the data. Table 1 illustrates the structure of the sample of mergers and acquisitions in the brewery industry. For the period non-crisis and crisis the number of M&As and its percentages are described with respect to emerging, mature and total targets. Table 2 illustrates the structure of the deal values of mergers and acquisitions in the brewery industry. For the period non-crisis and crisis the deal values of M&As and its percentages are described with respect to emerging, mature and total targets.
An economic downturn and increasing regulation have a negative impact on M&A activity (Martynova and Renneboog, 2008). As seen from table 1 there is a
significant difference between the period before the crisis and during the crisis in terms of the total number of deals. M&A activity has declined with almost 65% during the crisis this is in contrast with the study of Cernat-Gruici et al. (2009). However, the total deal value during the financial crisis is considerably higher when compared with the period before the financial crisis. With a value of approximately €49.7 billion its more than €7 billion higher in deal value when compared with the period before the crisis. This difference in deal value can be explained with the acquisition of Anheuser-Busch by Inbev in 2008. This was the highest acquisition in the history of the brewery industry with a deal value of approximately €41.2 billion. This acquisition is for 82.88%
11
Table 1
Structure of the sample of mergers and acquisitions
Table 2
Structure of the deal values of mergers and acquisitions *Values are given in thousands of euros
As stated before, the final sample consists of 96 merger and acquisition announcements over the period 1998-2010. There are 46 events that generated a positive CAR for the 11-day window in comparison with 50 negative. Over this period Heineken (21), AB Inbev (20), SABMiller (15) and Carlsberg (9) announced the most M&As. The big four is responsible for approximately 67.71% of the total announcements during this period of time.
Period Emerging Mature Total
Non-crisis Period 35 44 79 Percentage of Sample 36.46% 45.83% 82.29% Crisis Period 8 9 17 Percentage of Sample 8.33% 9.38% 17.71% Total 43 53 96 Percentage of Sample 44.79% 55.21% 100.00%
Period Emerging Mature Total
Non-crisis Period 15,985,194* 26,486,557* 42,471,751* Percentage of Sample 17.34% 28.75% 46.09% Crisis Period 6,613,338* 43,066,612* 49,679,950* Percentage of Sample 7.18% 46.73% 53.91% Total 22,598,532* 69,553,169* 92,151,701* Percentage of Sample 24.52% 75.48% 100.00%
12
During the financial crisis there are 17 announcement made by breweries. There are 7 events that generated a positive CAR for the 11-day window in comparison with 10 negative events. Heineken (7) and SABMiller (4) invested the most during the financial crisis with 65% of the total M&As together during the financial crisis.
On the basis of the definition of the World Bank group 43 emerging markets targets are examined for the second hypothesis. There are 20 events that generated a positive CAR for the 11-day window in comparison with 23 negative. Furthermore, there are 8 events that took place during the financial crisis and 35 of them are before the financial crisis. There are 6 M&A announcements in emerging targets during the financial crisis that generated a negative car and 2 announcements that generated a positive CAR. Most of the M&A in emerging markets are undertaken by Heineken (12) , AB Inbev (11) and SABMiller (8). These three breweries together are responsible for 72% of total M&A in emerging markets in the sample. Heineken, SABMiller and Carlsberg are responsible for the most M&As in emerging market during the financial crisis with each brewery responsible for 2 announcements.
3.3 METHODOLOGY
An event study is a well-known methodology used to test wealth effects on certain events (Fama, 1969). One of the pillars of the event study methodology is the efficient market hypothesis (Fama, 1969). New information is being included into stock prices immediately as it becomes available. Announcement of M&A’s would therefore result in changes in stock prices based on the information given at the announcement date. A semi-strong form of the efficient market hypothesis is assumed which means that stock prices reflect all publicly available information.
The event study examines if the financial crisis had any significant effects on the average cumulative abnormal returns earned by acquiring shareholders originated from the announcement of a merger and acquisition. This is done for the period, 01/01/1998 – 31/12/2010.
The estimation window to calculate the benchmark returns before the crisis and during the crisis will be set at 200 days, [-210 ; -10]; a period covering 210 days until 10 days before the announcement. This thesis uses a 21-day event period for the realized returns; [-10 ; 10].
13
The event study methodology used in this thesis is primarily based on MacKinlay (1997). This methodology includes an mean adjusted market model and this model will be used to determine the abnormal returns around the announcement day, which will be used to examine the market reaction of bidding shares to M&A announcements. The abnormal return and cumulative abnormal return are obtained through the following equation:
ARi, t = Ri, t – µi
CARi,t = ∑ ARi, t
In these equations ARi, t shows the abnormal returns on stock from firm i at time t.
Ri, t indicates the actual return of stock i on day t of the event window.
µi
is the meanof returns on stock from firm i in the estimation window. CARi,t gives the cumulative abnormal returns and will be computed with the estimated abnormal returns for each security.
The mean adjusted model will be used to estimate the benchmark return of each stock i:
BRi, t = ai + βi * Rm, t
where
ai, βi = the intercept and slope respectively of the linear relationship between the return
of stock i and the returns of the S&P500.
BRi, t = the benchmark return on security i on day t; Rm, t = the S&P500 return on day t
The parameters will be estimated using OLS regressions. Dividing CARit by N securities
gives the average of the estimated cumulative abnormal returns for all securities over different event windows.
CAARk = 1 / N ∑𝑁𝑡 =1 CARit
14
The standard parametric test statistics will be used to test the significance of the CAAR’s. The statistic follows a Student-t distribution and is approximately standard normal under the null hypothesis.
3.4 REGRESSION AND VARIABLES
The variables that define the cumulative abnormal returns are examined through the regression in this study. The regression holds two dummy variables: FINANCIALCRISIS (equal to 0 for the period before the crisis and 1 for the period during the financial crisis) and EMERGINGMARKET (equal to 0 for mature markets and 1 for emerging markets). An interaction term between the financial crisis dummy variable and emerging market dummy variable is added: FINANCIALCRISIS*EMERGINGMARKET. Using a multiple model regression it is tested whether the dummy’s FINANCIALCRISIS, EMERGINGMARKET and the interaction term have an explanatory function as it comes to CAR. Furthermore, possible explanatory variables that have an influence on abnormal returns, are also controlled for in the regression.
CAR = β0 + β1FINANCIALCRISIS + β2EMERGINGMARKET +
β3FINANCIALCRISIS*EMERGINGMARKET + β4SIZE + β5SALES + β6PROFIT +
β7LEVERAGE + ε
In addition to the independent variables there are four other variables in the regression which need to be controlled for. SIZE is defined as the log of total assets of a firm. This metric is used to express the size of a firm. SALES is defined as the Net Sales divided by the total assets of a firm. PROFIT is defined as the profit divided by the total assets of a firm. LEVERAGE is the ratio of total debt to book value of total assets. The betas of all control variables are expected to be significant positive.
15
4. EMPIRICAL RESULTS AND DISCUSSION
The first hypothesis is tested with a regression that excludes the dummy variables EMERGINGMARKET and FINANACIALCRISIS*EMERGINGMARKET. This regression does not distinguish between emerging and mature targets. By looking at the explanatory powers of the crisis in the ascertainment of the bidding abnormal returns, the regression results assist in analyzing the first hypothesis to check whether the financial crisis had a negative effect on the abnormal returns earned by the shareholders of acquiring breweries. Table 3 gives an overview of the outcomes of the regression output. The R2 of the
regression is 0.029 and this low value implies that the explanatory power of the regression is limited as it only explains 2.90% of the CAR. A negative value of -0.006 is found for the dummy variable FINANCIALCRISIS when taking control variables into account. This indicates that shareholders earned lower abnormal returns with -0.60% during the financial crisis. This observation is in line with the expectations resulting from the literature review. However, this negative value is highly insignificant. The first hypothesis is therefore rejected. There is no empirical evidence that the crisis has an influence on the abnormal returns earned by shareholders. There is no difference in shareholders return between the two periods of time for the market as whole.
Table 3
Explanation of the acquirer abnormal returns
The dependent variable is the cumulative abnormal return as computed by the mean adjusted model. The regression results are obtained with OLS regressions, where *, **
and *** denote significance at the 1%, 5% and 10% levels, respectively.
Hypothesis 2 Hypothesis 1
Coef. p-value Coef. p-value
Financial crisis Dummy 0.020 0.382 (-0.006) 0.710
Emerging market Dummy 0.024*** 0.093 Interaction Dummy (-0.056)*** 0.070 Ln(Size) 0,006 0.526 0.007 0.530 Sales (-0.005) 0.921 (-0.011) 0.834 Profits 0.051 0.845 0.163 0.549 Leverage 0.048 0.419 0.045 0.461 Constant (-0.157) 0.347 (-0.148) 0.384 Number of Observations 93 93 R-squared 0.069 0.029
16
The regression used for the second hypothesis includes the variables EMERGINGMARKET and FINANCIALCRISIS*EMERGINGMARKET. This separates the sample into 43 emerging targets and 53 mature targets. The regression shows whether the financial crisis has had a significant effect on abnormal returns obtained from M&As in developing countries.
Table 3 gives an overview of the outcomes of the regression output. The R2 of the
regression is 0.069 and this low value implies that the explanatory power of the regression is limited. However, the explanatory power of this regression is 4% higher than the regression used for the first hypothesis. The relation between EMERGINGMARKET and CAR is statistically significant at the 10% level with a coefficient of +0.024 and a p-value of 0.093 when taking control variables in to account. This result indicates that shareholders consider acquisitions in emerging markets as a positive decision from the brewery over the period before the financial crisis and it has a significant positive influence on the abnormal returns. The obtained result corresponds to the findings that emerging markets provide synergies to the acquiring breweries because of the high growth expectation in combination with the brewers’ abilities and leads to a positive market valuation of the strategy to acquire emerging market targets (Berger, Pukthuanthong and Yang, 2011).
Meanwhile, the table shows that M&A announcements in to emerging markets during the presence of a crisis has a significant effect of -0.056 on the cumulative abnormal returns (CAR) with a p-value of 0.07 at an alpha of 10%. The coefficient of this variable does not have a similar direction as EMERGINGMARKET and brings the positive coefficient of EMERGINGMARKET down during the financial crisis. An acquisition of an emerging target during the financial crisis results in a downgrade of -3.2% ((0.024-0.056)*100) of the abnormal return. This corresponds to the literature review that shareholders value M&As during a period of economic downturn as more risk full (Meyer and Thi Thu Tran, 2006). Hence the second hypothesis is supported and the cumulative abnormal returns earned from M&As in emerging markets were significantly lower during the financial crisis. Furthermore, the variable FINANCIALCRISIS is positive with 0.20, indicating that shareholders value a M&A in mature markets as a good strategic decision from the brewery. However, this results is insignificant and can therefore not be considered as verity
17
Additionally, it was expected that the control variable SALES would have a positive effect on CAR. The negative coefficient in both regressions indicates that the judgement of shareholders about a M&A announcement is negatively correlated with the amount of sales. However, the control variable sales is, together with the other control variables, not statistically significant.
18
5. CONCLUSION
Since the start of the financial crisis, the revenues of the European breweries in mature markets declined and expectations of growth were low, which resulted in new strategies of the breweries. More than ever before, breweries were trying to gain access into new geographies. Therefore, the aim of this research was to analyze the effect of the financial crisis on the abnormal returns earned by acquiring shareholders from merger and acquisition announcements.
The mean adjusted model in the event study has been applied to compose the cumulative abnormal returns for 96 events in the period 1998-2010. The obtained CAR’s are used as dependent variable in the ordinary least squares regression to find evidence in support of the two hypotheses. For the first hypothesis, this study found a negative effect of the financial crisis on cumulative abnormal returns. However, this result is not significantly different from zero. Based on this finding the first hypothesis is rejected. Therefore, the conclusion can be drawn that no wealth is created or destroyed during the financial crisis for acquiring breweries which relate to the announcement of a merger and acquisition for the market as whole. The results for the second hypothesis showed significant evidence that cumulative abnormal returns from M&A announcements of emerging targets were significantly lower during the financial crisis. Furthermore, the regression output is not in line with expectations as SIZE, SALES, PROFITS and LEVERAGE do not have a significant effect on the abnormal returns of acquiring shareholders. All these findings suggests that the financial crisis didn’t had a significant negative effect on cumulative abnormal returns earned from M&A announcements in mature and emerging markets together. However, the financial crisis did have a significant negative effect on M&A announcements from emerging markets, what resulted in lower cumulative abnormal returns. The study reveals that the shareholders valued emerging targets as a great opportunity before the financial crisis but during the recession as to risk full. This study experienced difficulties with the small dataset and especially from the relation between the deal value of the acquisitions to the market value of the breweries. The small dataset originates from the chosen industry and firm criteria and it is recommended for further research to extend the search for more companies and possibly to leave some criteria out. This will provide the researcher with more data to perform the research. The criteria that deal value should be at least €40 million, resulted in the problem that it hardly causes any changes in the stock prices of the big breweries. The Fama-French three-factor model could solve this problem.
19
6. REFERENCES
Ar-Loc, S., Vaziri, M.T., and Bhuyan, R. (2010). Do acquisitions create value? Evidence from the US and European bank acquisitions during financial crisis.Social Science Research Network Working Paper.
Benson-Armer, R., Leibowitz, J., and Ramachandran, D. (1999). Global Beer; What’s on tap ? The McKinsey Quartely. Vol. 1, pp 110 - 121.
Berger, D., Pukthuanthong, K., and Yang, J.J. (2011). International Diversification with Frontier Markets. Journal of Financial Economics, Vol. 101(1).
Chari, A., Ouimet, P.P. and Tesar, L.L. (2004). Acquiring control in emerging markets; evidence from the stock market. NBER Working Paper 10872
Cernat-Gruici, B., Constantin, L., and Iamandi, I. (2010). An overview on the Romanian M&A market during the recent financial crisis. Romanian Economic Journal, Vol. 37, pp. 167–178.
Deaton, A. (2011). The Financial Crisis and the Well‐Being of Americans. Oxford Economic Papers, 6(1), pp. 1‐26.
Duchin, R., Ozbas, O., and Sensoy, B.A. (2010). Costly external finance, corporate investment and the subprime mortgage credit crisis. Journal of Financial Economics, Vol(97), pp. 418-435.
Ebneth, O. and Theuvsen, L. (2007). Large Mergers and Acquisitions of European Brewing Groups – Event Study Evidence on Value Creation. Agribusiness , Vol. 23(3), pp. 377-406.
Fama, E. F., Fisher, L., Jensen, M. C., and Roll, R. (1969). The adjustment of stock prices to new information. International economic review, Vol. 10(1), pp. 1-21. Grave, K., Vardiabasis, D., and Burhan, Y. (2012). The global financial crisis and M&A. International Journal of Business and Management, Vol. 7(11).
Henisz, W.J., and Zelner, B.A. (2010). The hidden risks in emerging markets. Harvard business review, Vol. 88(4), pp. 88-95.
Hotchkiss, E. S., and Hill, C. (1998). Acquisitions as a Means of Restructuring Firms in Chapter 11, (July).
Howard, P. H. (2014). Too Big to Ale? Globalization and Consolidation in the Beer Industry. The Geography of Beer: Regions, Environment, and Society, pp. 155-165. Kvint, V. (2003). The Global Emerging Market in Transition; Articles, Forecasts, and Studies, 1973 – 2003 (2nd ed.) New York; Fordham Univ. press
20
Larimo, J., Marinov, M., and Svetla Marinova. (2006). The Central and Eastern European brewing industry since 1999. British Food Journal, Vol. 108(5), pp. 371–384.
Liargiotis P., and Repousis, S. (2011). The impact of merger and acquisitions on the Performance of the Greek banking sector. International Journal of
Economics and Finance, vol. 3(2), pp. 89–100.
Mackinlay, A.C. (1997). Event studies in Economics and Finance. Journal of Economic Literature, Vol. 35, pp. 13-39.
Madsen, E., S, Pedersen, K., and Lund-Thomsen, L. (2012). Effects of the M&A wave in the global brewing industry 2000-2010. The Economics of Beer and Brewing: Selected Contributions of the 2nd Beeronomics Conference.
Mehta, R., and Schiereck, D. (2012). The consolidation of the global brewing industry and wealth effects from mergers and acquisitions. The International Journal of Business and Finance Research, Vol. 6(3).
Meyer, K. E., and Tran, Y. T. T. (2006). Market Penetration and Acquisition Strategies for Emerging Economies. Long Range Planning, Vol. 39(2), pp. 177-197.
McCafferty, M., and Bhuyan, S. (2012). An Analysis of Market Power in the U.S. Brewing Industry: A Simultaneous Equation Approach.
Mulherin, J. H., & Boone, A. L. (2000). Comparing acquisitions and divestitures. Journal of corporate finance, Vol. 6(2), pp.117-139.
21
APPENDIX
22
acquirername date CAR Target name country 1deal value in €
Heineken 16-11-2001 .0098105 HEINEKEN ESPAÑA SA Spain 54.500,00
Heineken 13-9-2002 .0148806 AL AHRAM BEVERAGES COMPANY SAE Egypt 228.136,30
Heineken 14-1-2003 -.0845912 INVERSIONES Y RENTAS SA Chili n.a.
Heineken 14-1-2003 -.0845912 KARLOVACKA PIVOVARA DD Croatia 85.122,90 Heineken 2-5-2003 -.1525642* GETRÄNKE-BETEILIGUNGS-AG Germany 41.156,03
Heineken 19-11-2003 .0145019 BRAU UNION AG Austria 302.570,00
Heineken 19-11-2003 .0145019 BBAG Austria 380.810,00
Heineken 1-10-2004 .0300141 SOBOL BEER LLC Russia 52.654,00
Heineken 11-6-1999 -.0625394 CRUZCAMPO SA Spain 254.975,60
Heineken 1-2-2002 .0996034 BRAVO INTERNATIONAL Russia 449.840,00
Heineken 6-5-2005 -.038058 PATRA BREWERY Russia 41.320,00
Heineken 16-8-2005 -.0231191 PIVOVARNI Russia 415.744,00
Heineken 6-7-2005 .0213654 Kombinat Russia 113.836,20
Heineken 13-7-2005 .0294137 BAIKAL BREWERY JSC Russia n.a.
Heineken 14-6-2007 .0122718 KRÁLOVSKÝ PIVOVAR KRUŠOVICE AS czech republic n.a. Heineken 5-12-2007 -.0205317 RODIC M&B HORECA DOO Serbia 769.000,00 Heineken 28-12-2007 -.100804*** SYABAR BREWING COMPANY'S Cyprus 427.642,28
Heineken 14-1-2008 -.0892608 TANGO SARL Algeria n.a.
Heineken 29-2-2008 -.037215 BERE MURES SA Romania 876.923,10
Heineken 10-4-2008 .0108753 Eich h of Getr ä n ke Holdin g Switzerland n.a.
Heineken 11-1-2010 .0231315 FEMSA CERVEZA SA DE CV Mexico 4.434.177,00
Brau union 22-8-2000 -.0412342 SC BERE MIERCUREA-CIUC SA Romania 164.600,00
Sa el Aguila 21-3-2000 .0010413 HEINEKEN ESPAÑA SA Spain 165.000,00
S&N 14-9-1999 .0755922 GREENALLS PLC UK 1.801.587,30
S&N 17-3-2000 -.0002278 ALKEN MAES NV Belgium 771.770,80
S&N 14-2-2002 .0972359 HARTWALL OYJ Finland 2.000.000,00
S&N 28-4-2003 -.0090857 HP BULMER HOLDINGS PLC UK 521.865,43
S&N 14-5-2003 .102863 Parfil Portugal 342.000,00
S&N 11-4-2006 .1085724 Fosters group russia Russia 453.672,94
SabMiller 7-10-1999 -.0630524 Pilsner Urguell czech republic 327.034,40 SabMiller 30-5-2002 -.0162121 MILLER BREWING COMPANY USA 5.653.760,00
SabMiller 14-5-2003 .0001371 Peroni Italy 246.000,00
SabMiller 5-5-2004 -.0488151 HARBIN BREWERY GROUP LTD Cayman Islands 318.491,79
SabMiller 22-9-2004 -.0581228 AMALGAMATED BEVERAGE INDUSTRIES LTD South africa 495.580,50
SabMiller 23-2-2005 .0341748 BIRRA PERONI SPA Italy 162.500,00
SabMiller 19-7-2005 -.0317446 BAVARIA SA Colombia 4.235.886,00
SabMiller 25-10-2005 -.0060634 UNIÓN DE CERVECERÍAS Peru n.a.
SabMiller 28-10-2005 .0436256 BAVARIA SA Colombia 1.567.064,52
SabMiller 3-7-2006 .0114994 MCKENZIE RIVER CORPORATION'S USA n.a.
SabMiller 4-8-2006 -.0173254 FOSTER’S INDIA LTD India n.a.
SabMiller 18-10-2006 .0186759 COMPAÑÍA DE CERVEZAS Equador 41.121,00
SabMiller 9-10-2007 .0216421 Molson Coors USA 296.696,40
SabMiller 8-5-2008 -.0028612 SARMAT CJSC Ukraine 82.810,00
SabMiller 31-12-2008 .0513978 PABOD BREWERIES Nigeria 94.584,00
SabMiller 14-5-2009 -.0167009 KOMPANIA PIWOWARSKA SA Poland 837.097,27
Fosters G 28-8-2000 -.0909339*** Beringer USA 1.365.809,24
Fosters G 17-1-2005 -.1514063 southcorp ltd Australia 1.793.392,07
23
Molson C 19-3-2002 .010872 cervejarias Brazil 779.305,50
Ab Inbev 27-7-2001 .0902309 Diebels Germany 1.640.000,00
Ab Inbev 6-8-2001 -.0845611 Beck Germany 1.789.521,58
Ab Inbev 29-11-2001 -.1352648 Pivovarna Slovenia 114.581,17
Ab Inbev 18-12-2001 -.0548498 Pivovarna Slovenia 128.873,55
Ab Inbev 26-12-2001 .0581717 pivovarna Slovenia 137.473,03
Ab Inbev 23-7-2002 .0666866 Pivovarna Slovenia 76.500,00
Ab Inbev 1-11-2002 -.1356978 KK brewery China 42.436,80
Ab Inbev 15-11-2002 -.0397863 Brauergild Germany 491.000,00
Ab Inbev 5-9-2003 -.0768573 Conistrade Malasya 104.440,97
Ab Inbev 8-9-2003 -.0329697 China lion China 104.660,85
Ab Inbev 11-9-2003 -.0155435 Apatinska Serbia 146.550,00
Ab Inbev 7-1-2004 -.0333454 Hops Netherlands 612.000,00
Ab Inbev 3-3-2004 .0281794 Braco Sa Brazil 3.300.000,00
Ab Inbev 21-6-2004 -.042462 Zhejinang China 44.225,16
Ab Inbev 12-8-2004 -.0067805 SAN INTERBRYU OAO Russia 894.000,00
Ab Inbev 21-9-2004 .0134701 China lion China 105.971,91
Ab Inbev 14-2-2005 -.0130777 Ambev Brazil 1.067.442,03
Ab Inbev 14-6-2005 .010956 Ambev Brazil 500.000,00
Ab Inbev 23-1-2006 .0565384 Fujian China 575.477,64
Ab Inbev 21-6-2006 .0178189 Oriental Korea 55.700,09
Ab Inbev 14-7-2008 .007068 AB USA 41.173.600,00
AB 1-6-2004 .0414323 HARBIN BREWERY GROUP LTD China 253.030,30
AB 19-5-2006 .0354532 global conduit Cayman islands 135.887,75
Carlsberg 18-8-2000 .0138617 Albani Denmark 50.251,86
Carlsberg 3-11-2000 .0035345 feldlosse China 563.398,89
Carlsberg 17-5-2001 .0547394 okocimsky Poland n.a.
Carlsberg 31-5-2001 .0750117 turk tuborg Turkey 61.719,57
Carlsberg 1-9-2005 -.0139073 Carlsberg Hongkong 64.848,00
Carlsberg 20-1-2004 .0104738*** Holsten Germany n.a.
Carlsberg 20-1-2004 -.0671459*** Holsten Germany 243.220,00
Carlsberg 19-2-2004 -.0671459 Carlsberg Denmark 1.986.583,78
Carlsberg 18-9-2007 .0964309 Hanoi Vietnam 266.480,00
Carlsberg 14-12-2007 -.0851247 Lao soft drin Laos 48.208,18
okocimsky 9-8-2001 -.052996 Bosman Poland 62.798,39
Holsten 11-11-1998 -.0662479 Bavaria germany 56.122,40
Carlsberg
Malasia 8-9-2009 -.0153124 Carlsberg singapore Singapore 72.793,22
Marston 8-1-1999 -.0188573 Wolverhampton UK 235.622,09
Radeberger 10-12-2003 .0026937* stuttgarter Germany 70.982,20
Baltika 7-7-2005 -.0955367 Pikra Russia 50.504,00
Ambev 27-11-2000 -.0559455 cerveceiria uruguay 45.297,00
Ambev 12-2-2004 -.0419839 embotelladora
Dominican Republic
44.049,60
24
Table 5: Event study results, , where *, ** and *** denote significance at the 1%, 5% and 10% levels, respectively. 1Values are given in thousands of euros
Ambev 13-4-2006 -.219491 Quilmes Luxemburg 935.160,00
Ambev 28-3-2007 .0220954 Goldensand Brazil 110.670,00
Ambev 14-1-2008 .0005235 Quilmes Luxemburg 258.782,77
