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Mohamed Tarabay

DBA Graduate - 2010

Thesis title

Mergers and acquisitions in Kuwait 2004 – 2009: Empirical evidence of shareholder value creation and premium paid to integrate.

Supervisor(s)

Michel Albouy
Despite voluminous literature about mergers and acquisition, studies related to developing countries, especially in the Middle East remain scarce. This thesis endeavors to clarify the impact of mergers and acquisitions on Kuwaiti firms’ shareholder wealth creation, identify the importance and role of various financial variables for motivating the merger or acquisition decision, and determine the valuation premiums. A literature review establishes a conceptual framework for the role of mergers and acquisitions in corporate finance and their outcomes for participating firms. Reliable and valid statistical methodologies test the various hypotheses. An event study methodology measures the impact of mergers and acquisitions on shareholder wealth creation; Pearson correlations and multiple regression analysis measure the role of various financial variables in determining the event date abnormal returns and merger premiums paid to target firms. The experimental part of the study measures participating firms’ abnormal returns using a sample of 43 acquirers and 30 target firms listed on the Kuwait stock exchange; the sample for the determinants of merger premiums was based on 37 targets operating in Kuwait. The results reveal, with regard to the abnormal returns to bidders and targets, acquiring firms earn statistically negative abnormal returns, whereas target firm shareholders earn statistically positive abnormal returns. Furthermore, this study identifies significant financial variables that explain the variation in the abnormal returns of acquirers and targets. Finally, the financial variables, correlated and regressed against price-book merger premiums, also offer statistically significant variables for explaining variations in merger premiums. Although these results are consistent with previous studies, this thesis finds a unique moral hazard problem in mergers and acquisitions in Kuwait, due to specific Kuwaiti laws and government regulation. Moreover, this study introduces two new variables that explain variation in merger premiums, namely, sustainable growth rate and gross cash flows to current liabilities.