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The IUP Journal of Mergers & Acquisitions

March' 08
Focus

Despite the bloodbath on the investment banking street in the aftermath of the subprime crisis, there has been probably no let up in the merger mania witnessed over the last few years.

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The Effects of the Cross-Correlation of Stock Returns on Post-Merger Stock Performance
Combined in Luxury: M&A Announcement Effects and Capital Market Integration in Europe
United Brewery's Acquisition of Whyte&Mackay: the Potential Synergies
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The Effects of the Cross-Correlation of Stock Returns on Post-Merger Stock Performance

-- Antonios Antoniou,
Philippe Arbour and Huainan Zhao

This paper examines the effects of the cross-correlation of stock returns on the long-run post-merger stock performance of UK acquiring firms over the period 1985-2001. In general, it is found that the widely documented anomaly of long-run underperformance following mergers is not due to various stylized merger effects but rather due to the cross-correlation of stock returns, which compromises the `independence of observations' assumption, thus yielding overstated test statistics. The paper in particular tests the method of payment, diversification, book-to-market, and size effects in mergers. It is found that these documented long-run effects simply disappear after accounting for the cross-sectional dependence of sample returns. The results highlight the importance of controlling for the cross-correlation of stock returns in long-run, post-merger event studies.

Article Price : Rs.50

Combined in Luxury: M&A Announcement Effects and Capital Market Integration in Europe

-- Anke Königs and Dirk Schiereck

Parallel to the development towards European harmonization including the aim of an integrated European capital market, the luxury industry has experienced profound structural changes. No other internationally operating industry might be similarly dominated by European companiesreferring to the European majority among the listed luxury firms, and especially considering the four predominant Europe-headquartered luxury conglomerates. Owing to the expansion strategy of these conglomerates and the overall consolidation trend throughout the luxury industry, numerous Mergers and Acquisitions (M&A) involving luxury firms have taken place. Against the background of an increasing international orientation combined with the sector superiority of European luxury companies, the paper considers luxury M&A to be an appropriate object of investigation concerning the degree of European capital market integration. This study examines the announcement effects of 206 M&A involving luxury companies from 1993-2005. The main results comprise three aspectsprimarily, there are no significant differences in the announcement returns between domestic and cross-border luxury transactionsindicating a high degree of European financial market integration. Moreover, the paper finds significantly positive M&A announcement effects for shareholders of both luxury targets and acquirers. The abnormal returns accruing to target shareholders exceed the ones attributed to acquirer shareholders. Finally, contrasting M&A operations of acquiring luxury conglomerates and non-conglomerate luxury companies reveal that only acquisitions by non-conglomerate luxury firms are associated with significantly positive wealth effects differing significantly from the conglomerate sub-sample.

Article Price : Rs.50

United Brewery's Acquisition of Whyte&Mackay: the Potential Synergies

-- Vartika Gupta

On May 16, 2007 India's United Brewery (UB) Group, the world's third-largest maker of spirits, acquired Whyte and Mackay (W&M) Ltd., a Scotch Whisky making company in the Scotland, with $281 mn turnover, for £595 mn (US$1.2 bn). The synergies from the acquisition are expected to benefit both the companies. This acquisition is going to be one among the largest outbound acquisition by an Indian Company and it will make the UB Group a global player. Since Scotch has growing world wide demand, the UB Group intends to grow their business aggressively with the help of this acquisition. At the same time, the value offered by the UB Group does not seem cheap; however, UB Group has concentrated only on the inventory and brand image of W&M. The case study also highlights about the national and international market and the demand for scotch. It discusses the various facets of the acquisition.

Article Price : Rs.50
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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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