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Creating value for emerging-market companies

Why an acquisition pays rich dividends

Emerging-market companies are on the prowl. And so they should be. A recent report by Citigroup highlights just how much value emerging-market companies can create for their shareholders through an acquisition.

The US bank reviewed all $250 million-plus, cross-border acquisitions by emerging-market companies between January 1 1991 and December 31 2003, calculating market returns to shareholders of the acquiring company. The rewards are pretty stunning.

In the one-year period following the announcement, the average excess return (measured as the return of the acquirer's stock in excess of a risk-adjusted benchmark or market return) was 8.7%.

Even in the very short term, defined as the period starting five days before the announcement up to five days after the announcement, the average excess return was 1.9%. These figures are "similar to returns observed for cross-border acquisitions by US companies", says Citigroup.

Break down the results further and other interesting conclusions emerge – the most important being that most emerging-market companies achieve their acquisition goals even if the market is initially sceptical.

With such impressive results, it is little wonder that bankers reckon M&A will be the biggest story in the emerging markets this year and beyond.

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