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Topic: Board of directors’ features that increase value of international M&A deals in beverage industry in 2010-2020. An example by Campari.

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CHAPTER 1 - Theoretical aspects of board of directors’ features that increase value of international M&A deals in beverage industry. 7
1.1       Merger and acquisition reasons and performance assessment. 7
1.2       Agency problem in merger and acquisition. 11
1.3       Corporate governance. 13
1.4       Board of directors. 22
1.5       Role of corporate governance in increasing value of M&A in the beverage industry. 31
1.6       Hypothesis development. 35
CHAPTER 2 - Analytical research of board of directors’ features that increase value of international M&A deals in beverage industry in 2010-2020 exemplified by Campari 40
2.1       Historical background of Campari Group. 40
2.2       Analysis of Campari Group’s acquisition strategy. 43
2.3       Sample description. 47
2.4       Regression results and analysis. 56
Practical implications of board of directors’ features that increase value of international M&A deals in beverage industry. 58
3.1       Main findings. 58
3.2       Limitations and future research. 61

Nowadays, merger and acquisition are one of the most used and useful tools in the “hands” of companies to increase their value once their peak in performance is reached, or when they want to quickly expand. For this reason, merger and acquisition activity has registered an exponential growth in the last 35 years[1], also considering the fact that the trend of M&A is heavily affected by “shocks” in the economy (i.e. deregulation, new technologies, increase of commodities’ price) (DePamphilis, 2011). Indeed, when analyzing the trend of worldwide M&A, starting back to 1985, it is possible to notice that a first peak has been reached in 1999[2], just before the dot.com bubble burst. After an initial contraction that lasted until 2001, a new peak, which is still today the record for value of transactions, was set in 2007, when 47455 deals created a value of over 4.746 trillion USD. The third peak over the last four decades was registered in 2015[3], but then, the trend plateaued around 3.7 trillion USD.
Despite the number of transactions has soared, and so the value, it is common knowledge that M&As frequently destroy rather than create value. This idea is supported by a survey conducted by PwC in 2019[4]; indeed, when they asked to 600 global senior executives about their previous experience with M&A transactions, “only 61 percent of buyers believed their last acquisition created value”[5]. Moreover, 53% of acquiror executives admitted that for the 24 months following the closure of the deal, they underperformed compared to industry peers.
This contradiction, the unstoppable rise of M&A number despite the difficulty to achieve positive outcome, is reflected on the findings of previous studies related to value generation for the companies involved. Indeed, while some researches, such as the one by Andrade, Mitchell and Stafford (2001), demonstrated that on average M&A activity create value for both firms; other scholars like Ruback and Jensen (1983) and Moeller, Schlingemann and Stulz (2004) proved that despite an initial value creation, on average, acquiror company’s value on the long run tend to be around zero or even negative.
Academics found out that the major problem of value destruction during M&A transactions is the agency problem, namely the separation between ownership and control within companies (Jensen and Meckling, 1976; Jensen, 1986; Morck, Shleifer and Vishny, 1988). In order to better understand this problematic situation, investors should be imagined as “principals” and managers as “agents”. The job of agents is to maximize principals’ value, but, once the agents receive the control of the company, interest misalignment may arise. As a consequence, managers might take advantage of their position in order to fulfill their own interests.
The most important tool in the hands of shareholders to weaken the agency problem is corporate governance, which is a bundle of mechanism put in place to protect stakeholders’ interests (Zattoni, 2019). Commonly, three main mechanisms are deemed as the most useful: board of directors, executive compensation and ownership structure. However, as it will be shown later, and also in order to not produce a superficial work, only the most important of this mechanism, namely board of directors, will be taken as explanatory variable, since it is our belief that this is the mechanism which could better explain the effects that corporate governance can have on abnormal return of the share price of acquirer firm.
This topic, namely the study of the relationship between corporate governance and merger and acquisition performance, is not new, indeed many researches will be mentioned, especially in the literature review section; however, the novelty of this work lies in the fact that takes into account only cross-border M&As of a single company throughput a decade, to be more precise, between 2010 and 2020. Indeed, so far, researchers focused on the analysis of internal mergers and acquisition activities, or, in case of the inquiry of cross-border deals, only a specific sector was taken into account.
At this point, it is possible to formulate the research question:
Can board of directors’ features positively influence the value of cross-border merger and acquisition deals?
In particular, the object of the paper will be board of directors’ features that increase value of international M&A deals. While the subject will be board of directors’ features that increase value of international M&A deals in the beverage industry by the example of Campari. Therefore, the ultimate goal of this paper will be to evaluate how certain board’s characteristics influence the value of cross-border M&A deals in the beverage industry, using as a case study: Campari.
In order to answer this question, a specific work structure will be followed and is here below described.
The initial chapter will be dedicated to the literature review. The opening section of the chapter will be about the merger and acquisition reasons and how to calculate if an acquisition has been successful or not; hence, it will be defined what a merger and acquisition activity is, which are the different forms which may adopt, and which are the main reasons for an M&A to happen. Finally, it will be explained how to assess the value which the M&A brought to the acquirer firm. In the second section, initially, agency problem in general will be addressed, for then shifting the focus to the repercussions that it has on value creation/destruction during an M&A activity. Subsequently, the topic of corporate governance will be introduced, followed by the description of its main mechanisms, with a big part devoted to executive compensation and ownership structure. The next section will be then dedicated to the most important of the mechanisms, namely board of directors. The main duties and responsibilities of directors will be listed, as well as an in-depth analysis of board composition, structure and how to assess its effectiveness will be addressed. Then, a sub-chapter of the theory will be dedicated to beverage market and the gathering of the main researches which tried to study the role of corporate governance in increasing the value of merger and acquisition, in order to have a full picture of the subject. Ultimately, the last part will be about the hypothesis development and the theory and empirical findings which supports them.
The second chapter is dedicated to the analysis of the several M&As which Campari has carried out in the last 10 years. Firstly, an historical background will be provided, in order to better understand what will be later presented and studied. Afterwards, the strategy which Campari has adopted will be explained. The following section will be devoted to methodology; indeed, the first segment will be about the steps made in order to build the sample, the description of the variables used in the sample and the previous researches or theories which support the usage of such variables. Subsequently, the samples will be described, hence the results of the descriptive statistics, such as mean, median, etc., will be showed. The last part will be dedicated to the study of the multicollinearity issue, and thus, a correlation matrix will be run, as well as a VIF test.
The third chapter will be about the empirical results obtained and their analysis. Initially, the results of the forward selection regressions for all samples will be illustrated, and then, the analysis of the regressions will help us to reject or not the hypothesis. Ultimately, the limitations of the study will be explained so that future inquiries will not make our same mistakes.
[1] In 1985, only 2676 deals took place for a value of around 350 billion USD, while in 2019, 49849 deals were completed with a registered cumulative value of 3.7 trillion US dollars (https://imaa-institute.org/mergers-and-acquisitions-statistics/).
[2] In that year, more than 33 thousand M&A were registered for a total value of more than 4.1 trillion USD (https://imaa-institute.org/mergers-and-acquisitions-statistics/).
[3] Total value in that year was 4.74 trillion USD (https://imaa-institute.org/mergers-and-acquisitions-statistics/).
[4] https://www.pwc.com/ph/en/pwc-needles-in-a-haystack/2019/creating-value-through-ma.
[5] According to a Deloitte report, the main reasons for transactions to not deliver the expected value are: economic (32%) or market sector forces (30%) for what concerns external factors; while the leading internal factors are the inability to reach expected sales (30%) or the expected synergies did not materialize (28%) (https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/m-a-trends-report.html).

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