Effects of Cross Border Mergers and Acquisitions on the Value of the Firms Listed at the Nairobi Securities Exchange

Abstract

This dissertation is a study on the effects of cross border mergers and acquisitions on the value of listed companies in Kenya. The study was undertaken to establish why organizations undertake the inorganic mode of expansion that is cross border mergers and acquisitions. The objective of this study was to focus the operating performance of the listed companies at the Nairobi Securities Exchange after going through the cross border merger and acquisition and comparing their performance before and after the merger thus deriving their values pre and post merger or acquisition. Since cross-border mergers and acquisitions are a fundamental mechanism of globalization and are considered as prime vehicles for business engagement across countries through the foreign direct investment, significant amounts of foreign funds are crossing international borders for acquisitions with the objectives of earning super normal returns. The analysis for this study was based on operating measures in relation to Kenyan based acquiring companies. To conduct a uniform research and arrive at an accurate conclusion, this study was restricted only to Kenyan companies which have been involved in the cross border acquisitions within the East African region. To get a broader perspective on Kenya, the study looked at all the cross border acquisitions that have been undertaken by listed companies. In this study, the researcher tested the hypothesis that cross border mergers or acquisitions improve operating performance of acquiring companies. An event study methodology was taken to evaluate the abnormal performance following a cross border merger or an acquisition. The study revealed that firms engaged in cross border mergers and acquisitions exhibit financial gains from these transactions. This study thus concluded that cross border mergers and acquisitions improves the financial performance of acquiring companies after testing key financial performance indicators. However, there is need to study the benefits of cross border and acquisition over a longer period of time to actually quantify the benefits of these transactions. Further studies also need to be done to determine the marketing, global and international benefits derived when companies venture outside of their resident companies borders. Since the main goal of any firm is maximization of shareholders returns, the study of whether the cross border venturing is in the interest of the existing shareholders is valuable. The movement in the value of the stock prices as a result of this undertaking would also be an interesting study area.