Value Creation in International Telecom Acquisitions

Throughout the past decade, the telecommunications industry has started to evolve from an essentially multi-domestic into a global industry. The relaxation of foreign ownership restrictions, deregulation, privatization, and technological change have triggered a wave of international acquisitions involving telecommunications service providers. The underlying motives for these acquisitions are diverse, including improving network efficiency, increasing the customer base, acquiring technology and know-how, establishing footholds in emerging markets, and enabling carriers to better serve their multinational corporate customers. International telecom acquisitions have involved the purchase of minority or majority stakes and they have occurred between service providers from neighboring countries, as well as from geographically remote countries. Moreover, they have involved providers of a similar range of services, as well as those operating in different and vertically related service segments. This study examines the conditions under which international telecom acquisitions create value to shareholders of the acquirer and the target company. It classifies 72 international acquisitions in the telecommunications industry according to their characteristics, and examines their underlying motives. The study then uses an adopted M&A value creation framework and the Cumulative Abnormal Returns (CAR) method to empirically analyze the impact of different acquisition motives on the valuation effect. The CAR method employs stock market price data around the announcement date of each acquisition to compute the abnormal stock market returns. These abnormal returns are then regressed on acquisition motives and characteristics to obtain an empirical relationship between the motives and characteristics of international telecom acquisitions, and their value creation. ∗Assistant Professor, Nanyang Business School, Nanyang Technological University, Singapore. Address correspondence to Olaf Rieck, S3-B1b-55, Nanyang Avenue, Singapore 639798 (e-mail: [email protected], telephone: +65 6790-5929, fax: +65 6792-4217.