Mandatory shareholder approval of acquisitions generates “substantial value” – research

New European Corporate Governance Institute working paper

New academic research has found that obliging shareholders to vote on company acquisitions generates “substantial value” and helps discourage the most reckless transactions.
The researchers have focused on the UK, where M&A deals above a certain size (‘Class 1’) have to be voted on by shareholders. In particular, the study looks at the failed £24bn (€30.37bn, current) takeover by Prudential Plc of American International Group’s Asian life-insurance arm in 2010.
The deal was opposed at the time by advisory firms RiskMetrics and PIRC and by a group of shareholders marshalled by Neptune Investment Management’s Robin Geffen. It eventually collapsed with costs put at £377m.
The 64-page study – Does Mandatory Shareholder Voting Prevent Bad Acquisitions? – was put together by Marco Becht of the Université Libre de Bruxelles, Andrea Polo of Universitat Pompeu Fabra, Barcelona Graduate School of Economics and Stanford University, and Stefano Rossi of the Krannert School of Management. It is part of a working paper series from the European Corporate Governance Institute, the Brussels-based non-profit group where Becht is Executive Director.“Our results indicate that mandatory shareholder voting can generate substantial value improvements for acquiring shareholders,” the researchers write.
They use the statistical technique of ‘Multidimensional Regression Discontinuity’ and find support for a “causal interpretation of the positive effect of shareholder voting on acquirers’ returns from M&A transactions”.
The team finds that Class 1 transactions, those subject to a shareholder vote, are linked to an “aggregate gain to acquirer shareholders of $13.6bn”.

And they add that US deals of a similar size – which are not subject to shareholder approval – show an aggregate loss of $210bn for acquirer shareholders. Furthermore, smaller so-called ‘Class 2’ M&A deals in the UK, which also don’t have to go to a vote, “are associated with an aggregate loss of $3bn”.
“It is surprising that the UK model of governing large acquisitions has not been imitated in other markets dominated by widely held companies,” Becht, Polo and Rossi say. “Mandatory shareholder voting on large corporate acquisitions is a simple way of allowing these large institutions to discourage the most reckless acquisitions before they even see the light of day.”