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Moreover,the results are independent of the type of takeover bid, merger or tender offer, and of bidoutcome. This factor may be included in the model as a dummy variable.Tax consequences for new shareholders present another important factor. Ayers, Lefanowicz, andRobinson (2003) modeled acquisition premiums as a function of proxies for the capital gains taxesof target shareholders, taxability of the acquisition, and tax status of the price-setting shareholderas represented by the level of target institutional ownership.
On the other hand, Travlos (1987)argues that taxation effect is closely connected with method of payment. Therefore, the premiumestimation model should include only a variable for the methos of payment in order to avoidmulticollinearity.Some authors argue that M&A experience of acquirer management plays a crucial role indetermination of the premium value. Ismail (2008) found that in contrast to multiple acquirers,single acquirers generate higher returns in equity deals than in cash and mixed offers, due to thebe accounted in the model by including dummy variable.Many merger and acquisition deals are accomplished with the help of financial consultants. Porrini(2006) have found support for agency conflicts between acquirers and their bankers, resulting inbankers being associated with acquirers’ payments of higher acquisition premiums.
In contrast tothese results, Stouraitis (2003) showed that investment banks that advise acquirers of assetsnegotiate favorable terms when they invest their own money in the deal, but lead their clients tooverpay when they do not have financial incentives. Also, he found that acquirers pay the smallestpremiums in divisional MBOs when advised by the investment bank that finances the deal, and thelargest premiums in interfirm asset sales when advised by an investment bank remuneratedcontingent on deal completion. Taking into account that not only presence of consultants influencethe value of paid premium, but also remuneration method.22In a core-related M&A, the primary business of the acquirer is the same, vertically connected to orsimilar to the primary business of the target firm.
Different researches argued that corerelatedness of business of counterparties in M&A plays significant role in determining final value ofpaid premium. For example, Flanagan and O’Shaughnessy (2003) study found large interactioneffect between the impacts of core-relatedness and multiple bidders on tender offer premiums.The presence of multiple bidders is found to have a greater impact on tender offer premiums whenthe eventual acquirer is not core-related to the target. Also, results show that the directrelationships between core-relatedness and premiums as well as the direct relationship betweenmultiple bidders and premiums depend on the state of the interaction effect.
These findingssuggest that the premium estimation model should include special variable for core-relatedness ofM&A counterparties business.Greater part of theoretical literature on tender offers has been devotes to illustrating the positiveeffects of the toehold on the bidder’s profits. Empirical research, however, shows that a highproportion of bidders do not trade on the target’s shares prior to the tender offer announcement.However, Bris (2002) research presents a model in which the bidder trades in the open marketbefore announcing a tender offer that the incumbent shareholders form beliefs about the rival’squality given the order size. The most important conclusion of the study is that in some situationsno trade will be optimal, and a negative or positive we should develop a variable which will allowconsidering different toehold sizes.Currently there are no studies which concentrate on specific factors which determine the value ofmerger and acquisition premium on developing markets.
Identification of specific factors andexamining their influence will be the objective of my research. The basic model will include all thefactors analyzed by other authors as well as those which will be specific to developing markets.23LITERATURE REVIEW 3Studies on alliances confirm a significant increase in their use as a strategic device (Hergert andMorris, 1987; Anderson, 1990). Firms use alliances for a variety of reasons: to gain competitiveadvantage in the marketplace, to access or internalize new technologies and know-how beyondfirm boundaries, to exploit economies of scale and scope, or to share risk or uncertainty with theirpartners, etc.
(Powell, 1987; Bleeke and Ernst, 1991). Learning alliances, in which the partnersstrive to learn or internalize critical information or capabilities from each other, constitute animportant class of such alliances (Prahalad and Hamel, 1990; Hamel, 1991; Khanna, Gulati, andNohria, 1998). Yet, these alliances also raise an interesting dilemma, as a firm that uses them alsorisks losing its own core proprietary capabilities to its partners, especially when these partnersbehave opportunistically.Strategic alliances can be defined as purposive strategic relationships between independent firmsthat share compatible goals, strive for mutual benefits, and acknowledge a high level of mutualdependence (Mohr and Spekman, 1994).
Gulati (1995) defines an alliance as any independentlyinitiated interfirm link that involves exchange. Sharing, or co-development.Three streams of research typify most of the academic work on alliances. The first stream thatattempts to explain the motivations for alliance formation has put forth three rationales: strategic,transaction costs related, and learning related. Strategic considerations involve using alliances toenhance a firm’s competitive position through market power or efficiency (Kogut, 1988).Transaction cost explanation view alliance formation as a means to reduce the production andtransaction costs for the firms concerned (Williamson, 1985; Hennart, 1988).
Learning explanationview alliances as a means to learn or absorb critical skills or capabilities from alliance partners. Thesecond stream of research focuses on the choice of governance structure in alliances. Informedlargely by transaction cost economics, it argues that governance in alliances mirrors the underlyingtransaction costs associated with an exchange, and that equity-based structures are more likelyunder conditions of high transaction costs (Pisano, Russo, and Teece, 1988; Pisano, 1989).
Thethird stream of research examines the effectiveness and performance of alliances. It seeks toidentify factors that enhance or impede the performance of either the alliance itself, or of thealliance’s parent firms that are engaged in one (Beamish, 1987; Harrigan, 1985; Koh andVenkatraman, 1991; Merchant, 1997).Despite their different emphases, existing alliance research has begun to focus increasingly on thephenomenon of learning in alliance situations. Learning in terms of accessing and acquiring criticalinformation, know-how, or capabilities from the partner is oft stated to be one of the foremostmotivations for alliance formation (Hamel, 1991; Khanna et al., 1998).Alliances are seen not only ameans of trading access to each others’ complementary capabilities – what might be termedquasi-internalization – but also as a mechanism to fully acquire or internalize partner skills.Yoshino and Rangan (1995) state that such learning is always an implicit strategic objective forevery firm that uses alliances.
Given the importance that firms place on forming alliances to exploitlearning opportunities, researchers have begun to examine various factors that might impact thelearning process (Khanna et al., 1998) and learning success (Hamel, 1991). For example, it has24been argued that equity based governance structures are better suited for learning critical knowhow and capabilities from the partner (Mowery, Oxley, and Silverman, 1996). Such alliances areespecially seen as effective vehicles for learning tacit know-how and capabilities as compared tononequity-based contractual arrangements because the know-how being transferred or learnt ismore organizationally embedded (Kogut, 1988). Using casebased research, Hamel (1991) alsoshows that firms that possess a strong learning intent and create an appropriate learningenvironment win so-called “Learning Race”/ They show that firms’ incentives to learn are driven bytheir expected pay-offs that have complex, interdependent and dynamic structures.
Learningsuccess is determined by the amount of resources that firms allocate to learn from their alliancepartner. The resource allocation is itself dependent upon the expected payoffs associated with suchlearning. The magnitude of these pay-offs is also linked to the degree of overlap between alliancescope and parent firm scope.Learning in alliance situations can be of several kinds. First, learning that essentially involvesaccessing and/or internalizing some critical information, capability, or skill from the partner. This isthe kind of learning that has been most referred to in the alliance literature. Such learning is oftena private benefit that potentially accrues to firms that participate in alliances (Khanna et al., 1998).Second, researchers have also referred to learning wherein the alliance partners in the context oftheir existing alliance ‘learn’ how to manage the collaboration process and work better with eachother as their relationship evolves (Doz, 1996, Rino and de la Torre, 1998).
It involves learningabout the partners’ intended and emergent goals, how to redefine joint tasks aver time, how tomanage the alliance interface, etc. Such learning is equally critical to sustaining successfulcooperation in alliances. Third, learning that looks at how an individual firm might learn how tomanage its alliances better, and build what has been referred to as alliance capability (Anand andKhanna, 2000; Kale and Singh, 1999).Alliance capability as referred to above may be built overtime by accumulating more alliance experience, i.e.
by formi8ng more and more alliances (Anandand Khanna, 2000). However, it could also be developed by pursuing a set of explicit processes toaccumulate and leverage the alliance management know-how associated with the firm’s prior andongoing alliance experience (Kale and Singh, 1999).However there is sufficient opportunity to extend current research on learning alliances. Currentalliance research has failed to sufficiently address, theoretically and empirically, an importantdilemma that often exists in learning alliances. Participants in learning alliances would not only liketo access some useful information or know-how from the partner.
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