Do bondholder lose money in mergers and acquisitions (M&As)? Does creditor protection in bankruptcy codes or corporate governance regulation influence the position of bondholders in takeovers? These questions are answered by Luc Renneboog and Peter Szilagyi in their paper "How Do Mergers and Acquisitions Affect Bondholders in Europe? Evidence on the Impact and Spillover of Governance and Legal Standards". The authors show that bondholder wealth is strongly affected by cross-country variations in governance and legal standards. They find that governance considerations are in fact better predictors of Eurobond performance than either deal or firm characteristics.
Firstly, bond returns in both bidding and target firms are systematically higher in M&As that involve firms from the stakeholder-oriented governance regimes of continental Europe. Secondly, cross-border deals tend to induce lower bond returns. However, bondholders reap considerably higher gains if the deal exposes their firm to a jurisdiction with better creditor rights and claims enforcement. This suggests that cross-border M&As provide much greater scope for the functional spillover of creditor protection than has been previously assumed. Finally, bond performance is driven by both asset and financial risk changes, the merging firms' relative size, as well as a negative listing effect. The paper is published at SSRN and in the TILEC Discussion Paper Serie.
