IV. Conclusion
This article provides evidence on shareholder wealth creation following M&A of European utility sectors. This study examines whether M&A in regulated utility sectors generate different shareholder returns compared to M&A in non-regulated industries as reported by earlier extant studies. The findings suggest that similar to M&A in non-regulated industries the target shareholders of European utility sectors have gained and the acquirer shareholders have suffered losses. However the level of target gains and acquirer losses are both lower than reported by empirical studies on non-regulated industries. This result is attributed to the regulatory nature of the utility sectors. Particularly since utility sectors provide essential service so the role of the regulators is to ensure that these sectors do not suffer from market failure,which will have serious social and economic consequences. As mentioned in the introduction, the utility sectors are characterized by natural monopoly with significant economies of scale and scope. Due to these characteristics of utility sectors, it is unlikely for these sectors to earn considerable losses even with major change in ownership structure say through M&A. This has been reflected in our results as we find that the market has reacted less adversely for the acquirers of utility sectors compared to empirical evidences on acquirer returns in non-regulated industries. The lower target gains are attributed to the regulatory nature of the utility sectors. Due to economic regulation the acquirers of utilities might be sceptical that the regulators of utilities
will not allow them to realise higher premiums after the mergers.9 Hence the acquirers of utilities will pay lower target premiums resulting in lower target gains. The long run results indicate that shareholders of the combined entity suffered losses in the long run post merger period. These long run negative returns suggest that M&A of utilities in Europe is not a good strategy to survive and flourish in the long run. The long run negative returns could also be attributed to the lack of prior experience
of the European utilities in acquiring and integrating the merged companies. The long run negative returns also reinstates that post merger anomaly holds true in the context
of M&A of European utility sectors.