Since the coefficients of X Variable 1 and 2 are significantly different from zero, the effects of Dividend and Sales and disposal on abnormal return can not be ignored. Therefore the abnormal return calculated in step 4 really related to not only the takeover event but also other firm-specific information: Dividend and Disposal. In other ways, the abnormal return comprises three-part: one part is related to takeover events of Safeway, another part is from dividend, the left part is caused by Sainsbury's disposal.
Conclusion One explanation why Sainsbury board decided to take part in the Safeway takeover is "Horizontal Acquisition". The board of Sainsbury may believe the merger of Safeway will give rise to economies of scale and reduce costs, besides, improve diversification. "J Sainsbury's believes that the complementary nature of Safeway's and Sainsbury's product offering makes a combination of the two groups strategically compelling. Safeway's store formats and customer demographics would enable Sainsbury's to draw on its key strengths in integrating the two businesses. In addition, it would provide an improved national presence to the Enlarged Sainsbury's Group."
However, the stock market considers it as a negative net present value investment. The shareholders of Sainsbury suffered a significant negative abnormal return on the day it announced the takeover proposal and even the days before. Other competitors' entrance raise significant positive abnormal return for Sainsbury, but the abnormal gain did not offset the abnormal loss produced by the original takeover proposal. The sum of the abnormal return on event windows across each event is far less than total CAR from 1/1/2003 to 1/1/2004. It indicates that the factors on abnormal return during this period come not only from Safeway takeover but also other information.
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On 9 January 2003, Morrisons proposed a merger with Safeway and valued each Safeway share at 277.5p, a 30.3% premium to the closing price of 213p on the previous day. This Event precipitated the bidding for Safeway by Sainsbury's, Wal-Mart, KKR, Philip Green and Tesco. On 13 January 2003, Sainsbury's announced that it was considering making an offer for Safeway, in approximately equal amounts of cash and its shares, based on the Sainsbury's closing price on 10 January 2003. This would result in a value per Safeway Share of in excess of 300 pence. On 14 January 2003, Wal-Mart announced that it is considering making an all cash offer to acquire Safeway, at an unspecified price. On 17 January 2003, KKR announced that it is considering its position in relation to a potential offer for Safeway. On 20 January 2003, Philip Green announced that he had requested information to evaluate a possible offer for Safeway.
On 22 January 2003, Tesco announced that it is considering making an offer for Safeway at an unspecified price. Faced with the takeover competition, on 23 January 2003, Chairman of Safeway commented: 'The board of Safeway continues to believe that a combination with Morrisons represents an opportunity to create a new dynamic force in UK food retailing and remains fully supportive of Morrisons pursuing its offer.
However, in the light of the announcements by potential competing offers, we are advising shareholders to await developments. The board will provide further advice to shareholders as matters progress, including advice in relation to the terms of any proposal from Sainsbury's, Wal-Mart, KKR, Philip Green or Tesco and a decision being announced as to whether the proposed combination of Safeway with any of the potential offers is to be referred to the Competition Commission. On 19 March 2003,
Patricia Hewitt, Secretary of State for Trade and Industry, announced that she was referring to the Competition Commission (CC) four of the five proposed acquisitions of Safeway. The takeover bidding was continuing but it was over when CC reported on 26 September 2003 that the proposed acquisitions of Safeway by Asda, Sainsbury's and Tesco may all be expected to operate against the public interest and should be prohibited and the proposed acquisition of Safeway by Morrisons may be expected to operate against the public interest, but that this acquisition should be allowed to proceed provided limited store divestments recommended by the CC are agreed with Morrisons.
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