Market for corporate control and European utilities

Datta, Sanjukta (2010). Market for corporate control and European utilities. PhD thesis The Open University.



Mergers and acquisitions of European utility sectors subsequent to privatisation and deregulation triggered widespread concern. This is primarily due to the crucial role played by utility sectors in a country's economic and social development for being providers of essential services. The general political consensus is that the utility sectors should be economically regulated. So there is limited scope for the investors in utility sectors to cam supernormal profits. This calls for a need to examine whether M&A of utilities create value for the shareholders. In addition given the continuing trend of M&A in European utility sectors it is also vital to understand the motives behind such large scale M&A in utility sectors. So the objective of this thesis is to examine the causes and consequences of M&A in European utility sectors from a finance theory perspective.

From the study of a sample of 156 cases of M&A within utility sectors in Europe between 1990 and 2006 this thesis provide mixed evidence on the performance of utility sectors following M&A. On one hand the findings suggest that economic regulation of utilities acted as a good safeguard for the utility sectors from suffering losses following M&A. This is evidenced from the lower level of losses accrued to the acquirer shareholders. Evidence of synergy motive behind M&A of European utility sectors also suggests that effective regulation prevented M&A of utilities that are not motivated by synergy. From an economic policy perspective this result bears important policy implications as it suggests that M&A in utility sectors should be passed through effective regulatory scrutiny. On the other hand the fact that acquirer shareholders in the short run and the combined shareholders in the long run have suffered losses triggers a negative signal for the investors in utilities. This also has policy implications as it suggests that investors should be careful to adopt the strategy of M&A.

This thesis also finds that the short run changes in shareholder returns are not explained by any explanatory variables. However in the long run post merger period the shareholder returns of the utility companies that were subject to privatisation earned higher returns compared to those firms which were in private sector since their inception. One likely reason for this outcome is that privatisation has led to increase in efficiency of the utility companies as reported by the extant studies. In addition evidence from this thesis indicates that in the initial post merger period the shareholders under cross-border M&A faced some barriers to entry but as the length of the post merger period increased they had overcome these barriers to entry in a foreign land.

Taken together this thesis provides significant contribution both in the area of research on utility sectors as well as finance literature on M&A.

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