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The rise in takeover premiums: An exploratory study
Abstract
Cash tender, cash merger, and stock merger takeover premiums for 1974–1985 are approximately bouble those for 1963–1973. Cash tender repurchase premiums also rose in 1974. Thse upward shifts remain after we control for the business cycle and a possible time trend in premiums. The shift in both takeover and repurchase premiums in 1973–1974 is consistent with some event not unique to the takeover market affecting the capital markets in 1973–1974. We also investigate the possible effect on takeover premiums of the 1986 Williams Act and conclude that it does not explain the premium increase.
... High target returns reflect remarkably high and rising premia in successful contests. Nathan & O'Keefe [1989] report average successful premia for cash tender takeovers that rose from 41% to 75% in the 1963-1973 and 1974-1985 periods, and a rise from rose from 29% to 70% for cash merger premia. ...
... The Williams Act of 1968 and associated legislation requires disclosure and delays completion of tender offers. Tender offer premia decreased after the Williams Act [Nathan & O'Keefe, 1989]. 2 Bradley, Desai & Kim [1988] provide evidence that the joint market value increase of bidder and target is on average positive. ...
... I will conclude by mentioning three directions for further research. A problem that will require a combination of analytics and empiricism is to select among various possible explanations why bidders on average pay such high premia [see Nathan & O'Keefe, 1989;and Berkovitch and Narayanan, 1991], and why average combined bidder-target equityholder value gains from takeover appear to be so large. (The much-noted phenomenon of high average target abnormal stock returns associated with takeover is of course a result of the high premia paid.) ...
This essay describes the relationships between different models of the takeover process, and where possible provides analytical syntheses to integrate major trends in the literature. I focus mainly on three types of models: (1) models of tender offers, which examine the decisions of individual shareholders whether to tender (sell) their shares to a bidder, (2) models of competition among multiple bidders, and (3) models that examine the voting power of target managers who own shares.
... We also controlled for different types of acquisition: full ownership acquisitions (e.g. Beckman and Haunschild, 2002;Reuer, Tong and Wu, 2012), cash paid deals (Hayward and Hambrick, 1997;Reuer, Tong and Wu, 2012) and tender offers (Nathan and O'Keefe, 1989;Reuer, Tong and Wu, 2012). We controlled for transaction value (log-transformed) and the elapsed time (in days) between the focal acquisition and the preceding internal reference and external reference, respectively. ...
CEOs often must make strategic decisions under extreme uncertainty. One way they deal with this uncertainty is by relying on references – that is, recent comparable decisions. However, there is a conundrum that underlies these references: they can have diagnostic value but also induce anchoring. We shed light on this conundrum by unpacking diagnostic value and anchoring effects of two commonly used references in acquisition premium decisions: an external reference (the premium paid for the preceding acquisition in the target industry) and an internal reference (the premium paid by a focal firm for its preceding acquisition). We theorize that while external references have diagnostic value and anchoring effects, internal references only have anchoring effects. Moreover, we argue that powerful and overconfident CEOs rely more on internal references. Our results, based on a hedonic regression analysis of 3072 completed acquisitions, support these hypotheses.
... In empirical chapters, there are various definitions of the target's normal price as shown in Table 1. Nathan and O'Keefe (1989) and Betton and Eckbo (2000) applied the target's share price 60 days before the announcement date, while Moeller (2005) and use the share price 6 and 5 days before the announcement date (respectively). In his study of the US market for M&A 1990M&A -2005M&A , Raad (2012 used several definitions of the normal share market price of the target firm, 30, 15, and 10 days and 1 day before announcement date, and got a range of minimum and maximum premiums from 24.4% to 44.9%. ...
To explore the trends in buying and selling the firms in emerging markets, this chapter introduces the key features in the strategic deals in the largest markets within BRIC group. The upward and downward trends in purchasing corporate control that constitute the waves in the M&As activities in these countries are shown. The authors underline the role of government regulations and enhancement of competition in these countries in structuring the M&As waves. The changes in the industrial profiles, as well as the dollar volume and the quantity of deals in BRIC are presented. Both domestic and cross-border deals made by Chinese, Indian, Brazilian, and Russian firms are summarized.
... Premium1 = (offer price per shareclosing price four weeks before the announcement date / the closing price four weeks before the announcement date (Schwert, 1996;Reuter et al., 2012;and Jory et al., 2016). The four week time lag is used to ensure the baseline of the stock price is not affected by potential information leakage prior to the official announcement date (Nathan and O'Keefe, 1989). ...
In this paper, we examine how analyst coverage affects mergers and acquisitions in China. By using partial acquisitions in our study, we are able to directly examine the post-acquisition performance of the targets. Our results are robust and consistent with our hypotheses. Analyst coverage can effectively reduce information asymmetry. As a result, targets with high analyst coverage experience more immediate and accurate price correction in the short run, as indicated in the acquisition premium. In the long run, targets with high analyst coverage outperform targets with low analyst coverage up to two years post acquisition, based on EPS. Our results indicate analyst coverage can effectively (1) speed up price discovery by bringing targets' stock prices closer to their equilibria, (2) promote market efficiency by reducing information asymmetry, (3) help acquirers make better asset allocation and investment decisions in the acquisition market by reducing information asymmetry, and (4) support targets' long-term performance by providing them with better access to external resources.
... A range of different determinants -on both the buy and sell sides -have been identified by the existing literature as explaining the size of acquisition premiums. For instance, premiums have been found to be a function of several economic and financial factors: e.g., business cycles, demand and supply conditions in M&A markets, relative valuations, the competition for acquisition targets, and national pride (Hope et al., 2011;Jahera et al., 1985;Nathan and O'Keefe, 1989;Shelton, 2000;Shleifer and Vishny, 2001;Slusky and Caves, 1991;Walkling and Edmister, 1985). Similarly, acquisition premiums ...
While MNEs from emerging markets - and China in particular - tend to pay high acquisition premiums when they engage in cross-border acquisition activity, the determinants of this overbidding are not completely understood. We argue that state ownership is a key factor in explaining the high acquisition premiums paid by emerging-market multinationals. Employing data on 450 Chinese outward cross-border acquisitions over the 1990-2011 period, we find that Chinese state-owned MNEs pay higher acquisition premiums than do non-state-owned MNEs, that this is particularly the case for target firms based in developed-nations, and that state-owned MNEs pay even higher acquisition premiums when they act as parents and employ a privately-owned subsidiary to complete the cross-border acquisition.
... The premium paid to the target is calculated by SDC as the percentage difference between the final price per target share paid by the acquiring firm and the target's stock price several weeks before the announcement date (to avoid stock price distortions caused by information leakage surrounding acquisition announcement) (Ayers et al., 2003;Gaspar et al., 2005;Haunschild, 1994;Nathan & Okeefe, 1989). ...
This dissertation examines how a fundamental group decision-making bias referred to as group polarization may influence boards??? major strategic decisions (i.e. acquisition premiums, executive compensation, and diversification) and the diffusion of practices through interlock networks. I begin by explaining how directors??? average pre-meeting position tends to reflect the average decision they previously experienced across various boards. The elaborated polarization theory then suggests that board discussions can systematically induce directors to make a collective decision that amplifies their average pre-meeting position. For instance, I suggest that when prior acquisition premiums experienced by directors would lead them to on average support a relatively high (low) premium prior to a board meeting, they tend to approve a focal premium that is even higher (lower). I also examine several key moderators of the group polarization effect. I test the theory with a comprehensive dataset that includes historical records of major strategic decisions experienced by Fortune 500 directors across the population of U.S. public companies (1991-2006). Results provided strong evidence of group polarization in boards??? major strategic decisions. In addition, as predicted, group polarization was significantly reduced by the degree of demographic homogeneity among directors, the relative amount of experience (minority vs. majority in terms of opinions) with the type of decision under consideration, and the relative power (minority vs. majority). There is also evidence that board influence over management and the diversity of directors??? pre-meeting positions increase the polarization effect. The relative similarity of prior decisions (minority vs. majority) didn???t significantly reduce group polarization though. This dissertation extends corporate governance research from studying economic and sociological factors to examining social psychological processes of groups that can influence board decisions. It explains how group discussions may induce directors to approve a focal decision that is more extreme than the average decision experienced by directors on other boards, thus suggesting how group processes may distort network diffusion effects. Contributions to research on strategic decision-making processes, experience effects, and group polarization are also discussed.
... Cotter and Zenner, 1994). Four weeks allows for adequate time to avoid information leakage (Nathan and O'Keefe, 1989) and it is short enough to avoid contamination effects from other events (Flanagan and O'Shaughnessy, 2003). Premiums are computed using market data from Datastream in the following manner: ...
Purpose
– The purpose of this paper is to examine the incentives of controlling shareholders in the market for corporate control. The author investigates the takeover premiums paid by a sample of European acquiring firms with voting rights structures that are highly concentrated. The results show a positive relationship between takeover premiums and the bidder’s concentration of both voting rights and excess voting rights over cash-flow rights. The author argues that with higher levels of entrenchment, takeover premiums reflect the private benefits of control which controlling shareholders in bidding firms seek to extract from a public transaction.
Design/methodology/approach
– This paper uses cross-sectional regression analyses to examine the relationship between takeover premiums and the extent to which bidding firm shareholders exert control as well as the arrangement which underlie this. The sample is composed by 210 deals. The data are collected from various databases (Thomson Financial’s Mergers and Acquisition; Faccio and Lang’s (2002); Datastream/Worldscope, LexisNexis).
Findings
– The premium paid in European M&A transactions is affected by the level of ownership exerted by the controlling shareholder. The results show premiums are positively and significantly associated with higher levels of voting rights, as well as, the level of separation of ownership and control when controlling shareholder ownership is low. Pyramiding structure seems to be the means of separation the most associated with takeover premiums.
Research limitations/implications
– This paper can be improved by other specifications. First, it would be interesting to analyze premiums paid by firms with dispersed ownership structure and to compare these premiums with those paid by firms with controlling shareholders. Second, the author suggests to examine whether a controlling shareholder occupy the seat of a CEO or a chairman. In these cases, the author assumes that the controlling shareholder can benefit from more discretion and can extract more private benefits. Third, the author suggests extending the sample period to 2007 at least to include the sixth wave. This wave was even more significant than the high-tech wave and has not been studied much. In these cases, the author assumes that the controlling shareholder can benefit from more discretion and can extract more private benefits.
Originality/value
– Previous studies show that the premium reflects the private benefits of control in privately negotiated transactions (mainly block transactions). In the present study, the author shows that the premium can also reflect private benefits in public merger transactions.
... Player B will only invest in due diligence if the option value to bid on the target exceeds the costs of due diligence, I. 40 If Player B decides to invest in due diligence, the target becomes the subject of a bidding contest between informed players at t = 2. The winning bidder's value appropriation is contingent on its rival's 38 Distinctive competences provide an isolating mechanism and allow acquirers to capture the value creation brought about by these unique resources (e.g., Chatterjee, 1986, Singh & Montgomery, 1987Barney, 1988;Bradley, Desai, & Kim, 1988;Jarrell & Poulsen, 1989;Nathan & O'Keefe, 1989;Slusky & Caves, 1991). 39 For instance, in the study of Bradley, Desai, & Kim (1988) 65 out of 73 multiple bidder contests involved only two bidders. ...
Sophisticated valuation techniques such as adjusted present value and real options, attract ever-increasing attention from theory and practice. A huge number of papers in the academic field provide various applications of these advanced tools, for instance valuing research and development, strategic alliances and real estate. Real options have also been used for valuing mergers and acquisitions. However, notwithstanding the rich knowledge about valuation models applicable for valuing takeovers, there remains a need to further develop theories about the distribution of the value creation between the target’s and acquirer’s shareholders. In other words, what part of the value creation can the acquirer appropriate? Strategic management literature underlines the impact of possessing unique capabilities, and both the strategic and financial literature emphasize the role of information asymmetry in explaining value appropriation in acquisitions. In this dissertation both simple and more complex valuation models are discussed, and we propose a real option-game model that analyzes the acquirer’s value appropriation. In our valuation and value appropriation models, the specific resources and capabilities of the evaluator are considered. By explicitly taking the acquirer resources into account in the valuation analysis, and by developing a new application of a combined option-game model, this PhD thesis is taking a step in further bridging the gap between finance theory and strategic management.
... The premium paid for the target is calculated by the SDC as the percentage difference between the final price per target share paid by the acquiring firm and the target's stock-price four weeks before the offer announcement. Premiums are generally calculated two to eight weeks before the announcement date to avoid stock price distortions caused by information leaks surrounding acquisition announcements (Nathan and O'Keefe, 1989). We tested whether other periods for calculating premiums affected our results. ...
To examine the effects of interorganizational network structures on acquisition decisions, we propose a model whereby firms learn by sampling the diverse experiences of their network partners. We tested this model by examining the effect of diversity of network partners' experience on firms' acquisition decisions, using data on acquisition premiums and acquirers' stock market performance from 1986 to 1997. Results show that firms tied to others with heterogeneous prior premium experience tend to pay less for their acquisitions and have better-performing acquisitions than those tied to others with homogeneous experience. Firms also pay lower premiums when their network partners (1) have completed deals of diverse sizes, (2) have unique information, and (3) are themselves of diverse sizes. Firms that have multiplex relationships with their partners receive even more benefit. The results extend prior research on networks and learning by showing that collective network experience affects firms' decision quality.
... Franks and Harris (1989) found that U.K. takeover premia also increased after 1968 in the absence of similar legislation. Nathan and O'Keefe (1989) place the increase in takeover premia at 1973-74, well after passage of the law. ...
Mergers, acquisitions and takeovers often imply dramatic changes for employees, competitors, customers and suppliers. Not surprisingly, the market for corporate control has generated controversy and is frequently regulated by law or business custom. Though transfers of control take place in many countries, explicit and public struggles for control occur most frequently in the U.S. and U.K. During most of the 20th century, critics of mergers and acquisitions in the U.S. pointed to the danger of monopoly and increased concentration. Partly in response to the emergence of new control transactions such as the hostile takeover and leveraged buyout, more recent criticism has focused on the consequences for corporate productivity, profitability and employee welfare. Subject to qualifications, the market for corporate control reallocates productive assets ? in the form of going concerns ? to the highest bidder. In cases where the bidder uses his own money or acts on behalf of the bidding firm1s shareholders, the asset goes to the highest value use. In cases where managers of the bidding firm are able to serve their own interests rather than the interests of shareholders, the market for corporate control plays a paradoxical role. It simultaneously provides (1) a means by which managers may acquire companies using other people's money and (2) a means by which they may themselves be disciplined or displaced.
... Also, Asquith, Bruner, and Mullins (1983), Loderer and Martin (1990), and others report that gains to bidder firms in mergers are on average lower after 1968. Nathan and O'Keefe (1989) find that the premium increase after introduction of the Williams Act is not restricted to cash tender offers: Cash mergers experienced an increase in the average premium from 30% to 67%, while security exchange mergers saw the 26 Note that, contrary to takeover regulations in many Western countries (Berglof and Burkart, 2003), the Williams Act does not include a mandatory bid rule. A mandatory bid rule requires the bidder to proceed with an offer for 100% of the target shares after acquiring a certain stake in the target (Burkart and Panunzi, 2003). ...
This essay surveys the recent empirical literature and adds to the evidence on takeover bids for U.S. targets, 1980-2005. The availability of machine readable transaction databases have allowed empirical tests based on unprecedented sample sizes and detail. We review both aggregate takeover activity and the takeover process itself as it evolves from the initial bid through the final contest outcome. The evidence includes determinants of strategic choices such as the takeover method (merger v. tender offer), the size of opening bids and bid jumps, the payment method, toehold acquisition, the response to target defensive tactics and regulatory intervention (antitrust), and it offers links to executive compensation. The data provides fertile grounds for tests of everything ranging from signaling theories under asymmetric information to strategic competition in product markets and to issues of agency and control. The evidence is supportive of neoclassical merger theories. For example, regulatory and technological changes, and shocks to aggregate liquidity, appear to drive out market-to-book ratios as fundamental drivers of merger waves. Despite the market boom in the second half of the 1990s, the proportion of all-stock offers in more than 13,000 merger bids did not change from the first half of the decade. While some bidders experience large losses (particularly in the years 1999 and 2000), combined value-weighted announcement-period returns to bidders and targets are significantly positive on average. Long-run post-takeover abnormal stock returns are not significantly different from zero when using a performance measure that replicates a feasible portfolio trading strategy. There are unresolved econometric issues of endogeneity and self-selection.
... The premium paid to the target is calculated by SDC as the percentage difference between the final price per target share paid by the acquiring firm and the target's stock price several weeks before the announcement date (to avoid stock price distortions caused by information leakage surrounding acquisition announcement) (Ayers et al., 2003;Gaspar et al., 2005;Haunschild, 1994;Nathan & Okeefe, 1989). ...
This study investigates how a fundamental group decision-making bias referred to as group polarization can influence boards' acquisition premium decisions. The theory suggests that when prior premium experience would lead directors on average to support a relatively high premium prior to board discussions, they will support a focal premium that is even higher after discussions; but when directors' prior premium experience would lead them on average to support a relatively low premium prior to board discussions, they will support a focal premium that is even lower after discussions. Results provided strong support for the theory. Moreover, group polarization was reduced by demographic homogeneity among directors and by minority expertise but increased by board influence. This study introduces a fundamental group decision-making bias into governance research and explains how group processes can influence network diffusions. Copyright
... Jensen and Meckling's (1976) seminal article shows that the separation of ownership and control engenders conflicts of interest that lead to significant agency costs. Indeed, it has become accepted doctrine that corporate control has significant value (Stulz, Walkling, and Song, 1990;Nathan and O'Keefe, 1989;and Lease, McConnell, and Mikkelson, 1983). The value of corporate control is empirically observed when a firm with diffuse ownership (and therefore a separation of ownership and control) undergoes a change-of-control transaction. ...
We investigate whether the timing of equity sales to exploit market overvaluation may account for the reported poor post-offer stock performance of firms issuing equity. We posit that rights offers, targeted to a firm’s current shareholders, are less likely to be timed to exploit overvaluation. Our study compares firm commitment and rights offerings during 1933- 1949 when rights offers were common. We find that abnormal returns for firms electing the firm commitment method were significantly negative over the year following the offer, while those for firms using rights were not. This suggests that firm commitments were timed, while rights offers were not.
... Since we are not performing a merger announcement event study, our reliance on ex post data is not problematic, as the actual terms of the merger are always known two months after completion (the post-event measurement date we use). 5. There are no major contaminating events such as another merger announcement, major asset sale or purchase, or large security issue during the event See Elgers and Clark (1980), Travlos (1987), Hansen (1987), Nathan and O'Keefe (1989), Amihud et al. (1990), and Martin (1996). period from two months before the merger announcement date through two months after the effective date. ...
We examine wealth changes for all 1283 publicly traded debt and equity securities of firms involved in 260 pure stock-for-stock mergers from 1963 to 1996. We find no evidence that conglomerate stock-for-stock mergers create financial synergies or benefit bondholders at stockholders' expense. Instead, we document significant net synergistic gains in nonconglomerate mergers and generally insignificant net gains in conglomerate mergers. Conglomerate bidding-firm stockholders lose; all other securityholders at least break even. Convertible securityholders experience the largest gains, due mostly to their attached option values. Certain bond covenants are value-enhancing while leverage increases are value-reducing.
Earnout agreements link part of the payment for an acquired company to its future performance. Despite their option‐like features, they cannot be valued using vanilla option pricing methods. Two peculiar sources of risk affect these contracts: bidder default before the earnout expiration (default risk) and potential litigation associated with earnouts (litigation risk). We developed an option pricing model that encompasses these sources of risk, showing that counterparty and litigation risk can have a remarkable impact on earnout values. Our model's relevance is further enhanced by recent accounting standards that require contingent payments to be valued at fair value.
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The literature on M&As provides ample evidence for the variability of premiums paid in M&A deals over time and in different types of deals. Most work has been done on the data from developed markets. Using a sample of M&A deals in the largest emerging markets (BRIC) for 2000–2015, we examine three types of factors (acquirer characteristics, target characteristics, deal characteristics). To measure the premium, the event study method is used; therefore the data on cumulative average abnormal returns (CAAR) is adjusted to the market movements in each respective country. We focus on three levels of acquired stakes (>25%, >50%, and 100%). The study contributes to a deeper understanding of the differences in the size of premiums among the countries and the interaction of the main determinants which influence the magnitude of the premium. The regression results document positive drivers of the size of the premium including the percentage of the stake and industry relatedness. Besides these stylized determinants, the premium increases if the deal is made in a crisis year and by a domestic bidder. The negative determinants include the target size, its financial leverage, and the pre-bid stake of the acquirer (toehold).
The purpose of this study is to examine financial performance of firms in the post Merger and acquisition period for firms listed on Karachi stock exchange by exploring various motives of merger and acquisitions provided by various theory and previous empirical literature. Specifically, we explore these motives in the context of theory of synergy, agency theory and behavioral finance perspective.
Firms were selected form total of 124 acquisitions that take place during the period 1995 to 2011 and having sufficient data for three years before and after acquisitions. The final sample consists of 96 firms is extracted from total population and only 27 acquisitions were excluded due to unavailability of data.
Empirical results for agency theory shows the presence of empire building motives that leads to underperformance of firms in post merger and acquisition period. The study fails to support managerial risk aversion hypothesis of agency theory in Pakistani market.
The behavioral motives, such as managerial hubris (overconfidence) and escalation of commitment were also examined in the study using univariate and multivariate analysis. Empirical results fail to find any evidence regarding the presence of managerial hubris or overconfidence proposition in post merger and acquisition performance of firms. Finally, empirical results confirm the escalation of commitment hypotheses and its impact on post merger and acquisition performance.
Key term: Merger and acquisition (M&A), Empire Building, Managerial Risk aversion, Hubris, Escalation of commitment
The purpose of this chapter is to review the empirical evidence on the effect of various forms of corporate restructuring on security prices of the firms involved. Three types of restructuring will be considered: takeovers, leveraged buyouts and stock repurchases. Because there exists a massive literature on these issues, this review will be necessarily incomplete. Although most of the studies discussed in this chapter involve US data, results on three European countries (UK, France and Belgium) will also be presented.
The comparable company method of valuation does not account for the value of corporate control. Therefore, the method must be adjusted if it is being used to value a company involved in a change-of-control transaction. We provide two alternative ways to adjust the comparable company method for the value of corporate control. The efficacy of the adjusted comparable company method is confirmed on 51 highly leveraged transactions (HLTs) from Kaplan and Ruback (1995).
Purpose of this paper was analysis of methodologies of estimating control premium and estimation of its value on the Polish capital market in a period from 1995 to 2009. In our research a methodology proposed originally by Barclay and Holderness, and then modified by Dyck and Zingales, Nicodano Sembenelli and Massari Monge and Zanetti has been used. Similarly as in case of above mentioned researchers, attention has been focused on block transactions, nevertheless a process of transaction selection to survey sample has been modified.In Poland, due to lack of databases, not many surveys concerning control premium have been carried out. The first paper was elaborated by Trojanowski , in which 54 transactions concluded in period from July 1996 to February 2000 were analyzed. On the other hand, surveys performed by Jackowicz and Mielcarz concern 133 observations and a period 2002-2008. Our empirical analyses include 139 transactions which concerned more than 5% of votes and both the purchaser and seller of a package of shares were known. Block premium estimated based on this set of data was from 10,52% to 4,41% whereas standardized premium ruled at respectively lower level from 1,11% to 0,46%). However, in our opinion the factor lowering significantly the premium value is a method of transaction selection to the base – the same share in votes at General Shareholders’ Meeting can give, in case of different entities, completely different possibilities in area of controlling a company, hence selection procedures using predetermined, fixed thresholds are ineffective. It should be kept in mind that in case of majority of transactions that concerned at least 5% of votes at General Shareholders’ Meeting, it is difficult to discern any signs of process of taking over control of a public company, hence it would be erroneous to measure a control premium based on a whole aggregation. In this survey a three-stage process of data selection to the base has been proposed, which resulted in a set of transactions to which control taking over characteristics can be attributed. Block premiums estimated based on transaction prices in this aggregation were definitely higher and they ruled at a level from23,84% to 14,31%, whereas standardized premium was from 2,75% to 1,78%.
This chapter surveys the recent empirical literature and adds to the evidence on takeover bids for U.S. targets, 1980–2005. The availability of machine readable transaction databases have allowed empirical tests based on unprecedented sample sizes and detail. We review both aggregate takeover activity and the takeover process itself as it evolves from the initial bid through the final contest outcome. The evidence includes determinants of strategic choices such as the takeover method (merger v. tender offer), the size of opening bids and bid jumps, the payment method, toehold acquisition, the response to target defensive tactics, and regulatory intervention (antitrust), and it offers links to executive compensation. The data provides fertile grounds for tests of everything ranging from signaling theories under asymmetric information to strategic competition in product markets and to issues of agency and control. The evidence is supportive of neoclassical merger theories. For example, regulatory and technological changes, and shocks to aggregate liquidity, appear to drive out market-to-book ratios as fundamental drivers of merger waves. Despite the market boom in the second half of the 1990s, the proportion of all-stock offers in more than 13,000 merger bids did not change from the first half of the decade. While some bidders experience large losses (particularly in the years 1999 and 2000), combined value-weighted announcement-period returns to bidders and targets are significantly positive on average. Long-run post-takeover abnormal stock returns are not significantly different from zero when using a performance measure that replicates a feasible portfolio trading strategy. There are unresolved econometric issues of endogeneity and self-selection.
Drawing on neoinstitutional and learning theories, we distinguish three distinct modes of selective interorganizational imitation: frequency imitation (copying very common practices), trait imitation (copying practices of other organizations with certain features), and outcome imitation (imitation based on a practice's apparent impact on others). We investigate whether these imitation modes occur independently and are affected by outcome salience and contextual uncertainty in the context of an important decision: which investment banker to use as adviser on an acquisition. Results of testing hypotheses on 539 acquisitions that occurred in 1988-1993 show that all three imitation modes occur independently, but only highly salient outcomes sustain outcome imitation. Uncertainty enhances frequency imitation, but only some trait and outcome imitation. The results highlight the possible joint operation of social and technical indicators in imitation, illuminate factors that moderate vicarious learning processes, and show asymmetries between learning from success and failure.
This study investigates the effects of interorganizational relationships on the decision of how much to pay when acquiring another company (acquisition premiums). I argue that firm managers will look to both their interlock partners and professional firms when deciding how much to pay. Drawing on diverse literatures on the effects of uncertainty on interorganizational relationships, I further argue that the impact of interlocks and professional firms on the premium decision will be stronger when managers are uncertain about the value of the acquisition target. Hypotheses are developed and tested on 453 acquisitions that occurred during 1986-1993. Results show that both interlocks and relationships with professional firms affect acquisition premiums. Premiums paid by an acquiror are related to those paid by their interlock partners and to those paid by other firms using the same professional firm. Only the interlock premium relationship, however, is stronger under conditions of uncertainty. The study contributes to our understanding of the role of interorganizational transfers of routines, practices, and structures in interorganizational decisions.
This article extends signaling theory to research on acquisition premiums and investigates the value that newly public targets capture in post-IPO acquisitions. We complement previous research on acquisition premiums by suggesting that signals about targets can enhance sellers' gains by reducing acquirers' offer price discounting that is due to information asymmetries. Specifically, we argue that target firms can engage in interorganizational relationships (e. g., associations with prominent investment banks, venture capitalists, and alliance partners) that function as signals and enhance sellers' gains. Empirical evidence shows that the benefits of such signals apply to domestic and cross-border deals alike and that these benefits are even greater for IPO targets selling their companies to acquirers based in different industries.
We empirically analyze the determinants of takeover premia over the period of 1985–2005 and investigate four different factors affecting these premia over the sample period. Our results can be summarized as follows. First, takeover premia were affected by market misvaluation: they were higher during periods of investor pessimism and market undervaluation and were lower during periods of investor optimism and market overvaluation. Consistent with the above result, takeover premia were also negatively related to prior stock market return and positively related to stock market volatility. Second, takeover premia exhibited momentum, being positively correlated with the premia paid in other takeovers in the recent past. Third, takeovers which involved firms in regulated industries immediately prior to deregulation events were associated with significantly lower premia, while premia paid in takeovers which involved firms in deregulated industries after deregulation events were not significantly different from those in other industries. Finally, takeovers of firms in industries with excess capacity and too many firms (industries going through consolidation) commanded higher premia compared to takeovers in other industries.
This paper uses Australian data to analyze takeover bid premiums and long‐term abnormal returns for mergers that occur during wave and non‐wave periods. Findings reveal that bid premiums are slightly lower in wave periods, and bidding firms earn normal post‐takeover returns (relative to a portfolio of firms matched on size and survival) if their bids were made in non‐wave periods. However, bidders who announced their takeover bids during wave periods exhibit significant underperformance. For mergers that took place within waves, there is no difference in bid premiums nor is there a difference in the long‐run returns of bidders involved during the first half and second half of the waves. We find that none of prominent theories of merger waves (managerial, misvaluation, and neoclassical) can fully account for Australian takeover waves and their effects. Instead, our results suggest that Banal‐Estanol et al.'s screening theory of merger activity, by combining the misvaluation and neoclassical theories, may provide a better explanation.
â–º We identify time-varying industry and macroeconomic factors that explain the observed variation in takeover premiums over time. â–º Increased growth prospects in an industry can boost expected synergies and/or demand for the target firm, and therefore increase the merger premiums. â–º Merger premiums are also higher when the target's industry has more research and development and has less dispersion in performance among firms within the industry. â–º Merger premiums are also positively related to capital liquidity and positively related to volatility in economic growth.
This chapter describes the relationships between different models of the takeover process as well as analytical syntheses to integrate major trends in the literature. Three types of models are focused: (1) models of tender offers, which examine the decisions of individual shareholders whether to tender (sell) their shares to a bidder, (2) models of competition among multiple bidders, and (3) models that examine the voting power of target managers who own shares. Any attempt to understand competitive takeover auctions must address the anomaly that bidding in takeover contests generally occurs in a few large jumps, rather than many small increments as predicted by the conventional analysis of bidding in costless English auctions. This chapter therefore discusses models of costly investigation and costly bid revision, wherein successive bids may increase by large increments when bidders try to intimidate their competitors into quitting. The share ownership and voting power of target management that values control can be important for the outcome of a tender bid and for the bidder's decision whether to undertake a tender offer or a proxy fight. It is therefore important to understand how managers may be able to alter their effective control of voting rights either directly through share purchases or indirectly through changes in capital structure.
This study investigates corporate takeovers by "white knights," a friendly bidding firm actively sought by a target firm in order to avoid being taken over by a hostile bidding firm. White knights are particularly vulnerable to overbidding for their targets, i.e., bidding more than the aggregate market value of the target's common stock, since they are, by definition, involved in a competitive bidding contest. Since previous studies have shown: (i) that acquisitions do not, on average, confer substantial benefits on bidding firm shareholders, and (ii) that shareholders of bidding firms entering a merger competition subsequent to the first bidder suffer significant losses in stock value, the white knight's motivation for attempting to outbid its hostile rival is not well-understood. One of the hypotheses investigated in this study, that white knights systematically overbid for their targets, presumes that becoming a white knight does not serve the interests of the bidder's shareholders. Rather, the beneficiaries of a white knight acquisition would be target shareholders, who receive a higher price for their shares, and target managers, who would risk losing their jobs if the firm was taken over by a hostile bidder. Overbidding leads to a wealth transfer from shareholders of the white knight to target shareholders. Under the "overbidding hypothesis," white knight acquisitions are expected to generate greater share price losses to bidding firm shareholders and greater share price gains to target shareholders than non-white-knight acquisitions.
Throughout the 1990s, organizations combined resources through acquisitions and alliances in record numbers. Simultaneously, a large portion of acquisition and alliance activity has involved firms in high-tech industries. This study investigates whether acquirers' and targets' alliance experience is beneficial to value creation in high-tech and low-tech acquisitions using robust regression techniques. The study uses market returns around acquisition announcement and finds that alliance experience correlates with market returns and the results are different for high-tech and low-tech acquisitions. The findings have important implications for literature on acquisitions and alliances, as well as for managers.
Purpose
The purpose of this paper is to investigate the payment of percentage cash from total payment in a REITs mergers and acquisitions (M&A) transaction.
Design/methodology/approach
This study applies a heteroskedastic‐consistent regression model to analyze the relationship between the percentage of cash paid during M&A transactions and other determinants such as sources of funds, geographical proximity and percentage sought by acquirer.
Findings
The results of empirical analysis show that REITs with internal corporate funds tend to pay larger percentage of cash versus other forms of payments within M&A deals. Moreover, geographical proximity and intra‐industry REITs M&A has no significant effect on the form of payment. And finally, the larger the percentage sought by the acquirer, the less percentage of cash paid in a REITs M&A deal.
Practical implications
The paper mainly shows that internal funding is a significant factor in determining the percentage of cash versus stocks (or any other form of payment) when completing a merger. This highlights the importance of a REIT to manage its short‐term liquidity and cash specifically. Also, this shows the applicability of pecking order theory on the REITs industry.
Originality/value
The paper researches the cash as a method of payment in REITs M&A, an industry with its specific characteristics.
Cet article traite des facteurs expliquant le niveau des primes d’offres publiques offertes, en confrontant les avancées de la littérature aux résultats obtenus. Trois domaines de causalité sont dégagés : les gains de l’opération pour l’offreur, le processus d’enchères, les conflits d’agence. Il ressort que :
- la prime est fortement corrélée au potentiel de progression du titre signalé par les analystes. Mais ni les notions de prime de contrôle et de synergies, ni le mode de paiement de l’opération n’ont d’impact net dans notre échantillon ;
- la compétition entre offreurs est une variable fondamentale sur le niveau de la prime. Si elle déclenche des enchères, la prime s’apprécie considérablement. En revanche, ni le prépositionnement de l’offreur au capital de la cible, ni l’accord des dirigeants de la cible ne permettent de réduire la prime ;
- la taille de la cible est significativement et négativement corrélée avec la prime.
Classification JEL : G32, G34, G12, G31
We examine the characteristics of the sixth merger wave that started in 2003 and came to an end approximately in late-2007. The drivers of this wave lie primarily in the availability of abundant liquidity, in line with neoclassical explanations of merger waves. Acquirers were less overvalued relative to targets and merger proposals comprised higher cash elements. Moreover, the market for corporate control was less competitive, acquirers were less acquisitive, managers displayed less over-optimism and offers involved significantly lower premiums, indicating more cautious and rational acquisition decisions. Strikingly however, deals destroyed at least as much value for acquiring shareholders as in the 1990s.
This study examines the contradictory predictions regarding the association between the premium paid in acquisitions and deal size. We document a robust negative relation between offer premia and target size, indicating that acquirers tend to pay less for large firms, not more. We also find that the overpayment potential is lower in acquisitions of large targets. Yet, they still destroy more value for acquirers around deal announcements, implying that target size may proxy, among others, for the unobserved complexity inherent in large deals. We provide evidence in favor of this interpretation.
Purpose of this paper was analysis of methodologies of estimating control premium and estimation of its value on the Polish capital market in a period from 1995 to 2009. In our research a methodology proposed originally by Barclay and Holderness, and then modified by Dyck and Zingales, Nicodano Sembenelli and Massari Monge and Zanetti has been used. Similarly as in case of above mentioned researchers, attention has been focused on block transactions, nevertheless a process of transaction selection to survey sample has been modified.In Poland, due to lack of databases, not many surveys concerning control premium have been carried out. The first paper was elaborated by Trojanowski , in which 54 transactions concluded in period from July 1996 to February 2000 were analyzed. On the other hand, surveys performed by Jackowicz and Mielcarz concern 133 observations and a period 2002-2008. Our empirical analyses include 139 transactions which concerned more than 5% of votes and both the purchaser and seller of a package of shares were known. Block premium estimated based on this set of data was from 10,52% to 4,41% whereas standardized premium ruled at respectively lower level from 1,11% to 0,46%). However, in our opinion the factor lowering significantly the premium value is a method of transaction selection to the base – the same share in votes at General Shareholders’ Meeting can give, in case of different entities, completely different possibilities in area of controlling a company, hence selection procedures using predetermined, fixed thresholds are ineffective. It should be kept in mind that in case of majority of transactions that concerned at least 5% of votes at General Shareholders’ Meeting, it is difficult to discern any signs of process of taking over control of a public company, hence it would be erroneous to measure a control premium based on a whole aggregation. In this survey a three-stage process of data selection to the base has been proposed, which resulted in a set of transactions to which control taking over characteristics can be attributed. Block premiums estimated based on transaction prices in this aggregation were definitely higher and they ruled at a level from23,84% to 14,31%, whereas standardized premium was from 2,75% to 1,78%.
We document the premiums over market price paid in negotiated third-party purchases and negotiated repurchases of blocks of common stock. The blocks range from 1.5% to 44% of outstanding shares and the average premium is approximately 10%. There is no significant difference between the premiums paid by managers in block repurchases and the premiums paid by outsiders in block purchases. Repurchasing managers pay a premium that corresponds to the market value of control associated with the block.
Unscheduled stock options to target chief executive officers (CEOs) are a nontrivial phenomenon during private merger negotiations. In 920 acquisition bids during 1999-2007, over 13% of targets grant them. These options substitute for golden parachutes and compensate target CEOs for the benefits they forfeit because of the merger. Targets granting unscheduled options are more likely to be acquired but they earn lower premiums. Consequently, deal value drops by $62 for every dollar target CEOs receive from unscheduled options. Conversely, acquirers of targets offering these awards experience higher returns. Therefore, deals involving unscheduled grants exhibit a transfer of wealth from target shareholders to bidder shareholders.
This research analyzes the impacts of core-relatedness and multiple bidders on premiums paid in 285 tender offers for US-based manufacturing firms. In a core-related M&A, the primary business of the acquirer is the same, vertically connected to or similar to the primary business of the target firm. This study proposes and finds a large interaction effect between the impacts of core-relatedness and multiple bidders on tender offer premiums. The presence of multiple bidders is found to have a greater impact on tender offer premiums when the eventual acquirer is not core-related to the target. In other words, acquirers that are not core-related to the firms they purchase, tend to pay very high premiums when multiple bidders compete for the target. Results show that the direct relationships between core-relatedness and premiums as well as the direct relationship between multiple bidders and premiums depends on the state of the interaction effect.
This paper investigates the association between premia paid in targeted share repurchases (greenmail) and the characteristics of the boards of directors. A nonlinear relationship is found between the premium paid and the proportion of shares held by the inside directors. The premium decreases as the proportion of unaffiliated outside directors increases.
I review recent empirical research documenting offer premiums and bidding strategies in corporate takeovers. The discussion ranges from optimal auction bidding to the choice of deal payment form and premium effects of poison pills. The evidence describes the takeover process at a detailed level, from initial premiums to bid jumps, entry of rival bidders, and toehold strategies. Cross-sectional tests illuminate whether bidders properly adjust for winner's curse, whether target stock price runups force offer price markups, and whether auctions of bankrupt firms result in fire-sale discounts. The evidence is suggestive of rational strategic bidding behavior in specific contexts.
This paper provides large-sample evidence that poison pill rights issues, control share laws, and business combination laws have not systematically deterred takeovers and are unlikely to have caused the demise of the 1980s market for corporate control, even though 87% of all exchange-listed firms are now covered by one of these antitakeover measures. We show that poison pills and control share laws are reliably associated with higher takeover premiums for selling shareholders, both unconditionally and conditional on a successful takeover, and we provide updated event study evidence for the three-quarters of all poison pills not yet analyzed. Antitakeover measures increase the bargaining position of target firms, but they do not prevent many transactions.
This study offers several new perspectives on the effects of competition in takeover contests on bidder returns. Using a more extensive database than existing studies and employing several different measures of success in takeovers, we find that success in competitive acquisitions decreases shareholder wealth relative to both failure and success in observed single-bidder takeovers. Further, we consider and test hypotheses regarding bidder returns, including hypotheses suggested by the preemptive bidding theory. In general, our results neither support the preemptive bidding theory nor the hypotheses linking the method of payment and the observed level of competition. We also test hypotheses relating to returns across the multiple events in a multiple-bid contest that competition among bidders generates. The results of these tests underscore the importance of timing as well as success of a bid to the bidder's subsequent performance.
This paper presents evidence on how the Williams Act affected the corporate acquisitions market. The acquisition process is modeled and three hypotheses about the Act's effects are discussed. These hypotheses imply differing restrictions on how the Act changes the model's parameters. Parameter changes are estimated but we are unable to reliably discriminate between two of the three hypotheses using the classical statistical testing approach, though the third hypothesis is reliably rejected. Bayesian analysis using a diffuse prior is employed to make formal probability comparisons among the hypotheses. The most probable hypothesis, according to the results, implies that the Williams Act reduced the expected gross present value of acquisition attempts.
In a competitive market for takeover bids, the takeover premium serves as an effective proxy for the expected synergy. We find that the expected synergy is primarily related to the premiums paid in other recent takeovers in the same industry. This relation is even stronger when considering previous takeovers (especially over the previous three-month horizon) in the same industry that have the same payment method (cash versus stock) or form of takeover (tender offer versus merger). More of the variation in expected synergies among takeovers can be explained by the premiums derived from recent takeovers in the same industry than by all bidder- and target-specific characteristics combined. We also find that the bidder valuation effects are inversely related to the premium paid for targets, implying that abnormally high premiums may reflect overpayment rather than abnormally high synergies. (c) 2008 The Southern Finance Association and the Southwestern Finance Association.
Thesis (Ph. D.)--Stockholm School of Economics, 1996. Includes bibliographical references.
This article investigates leverage influence on project selection. First, the authors examine 428 mergers (1962-82) and then 389 acquisitions of all types (1982-86). Announcement-period acquirer returns are greater the higher the leverage of the acquirer. A third data set contains 173 acquisitions undertaken during 1978-90 for firms that underwent major increases in leverage, often forced by hostile takeover. Acquisition performance increases after restructuring. The evidence is invariant with respect to methodology--beta-adjusted abnormal returns, numeraire portfolio approach, and three-factor regression model residuals produce identical results. Overall, the data support the hypothesis that debt improves managerial decision-making. Copyright 1993 by University of Chicago Press.
This article characterizes controlling and minority share prices and optimal appraisal remedy valuation rules in a rational expectations equilibrium. The model identifies a set of optimal judicial valuation policies that would motivate shareholders to make optimal investment and freeze-out choices and identifies consequences of judicial valuation error. The model suggests that the share appraisal rule, under which minority shares are assessed a minority discount in freeze-out appraisals, would be more optimal than Delaware's pro rata doctrine, which forbids discounting of minority shares. In accordance with the share appraisal rule and in contradiction with their own pro rata doctrine, Delaware courts frequently allow implicit discounts to minority shares in freeze-out appraisals. In summary, the model articulates why courts should not equate minority share value with market price. Consistent with this implication, Delaware courts have always uniformly rejected the notion that market price should be the sole determinant of appraisal value.
The paper presents a theoretical alternative to the commonly held belief that poison pills affect shareholder wealth negatively. Specifically, the paper models how ex ante shareholder wealth can be maximized with contractual provisions that resemble poison pill plans and, reversely, voluntary dilution à la Grossman and Hart (1980) by allowing an optimal choice of takeover probabilities and premia. The model's predicitions are consistent with recent empirical evidence [Comment and Schwert (1995)]. The paper shows that, under optimal employment of the proposed provisionsa, the comparative statics on takeover probabilities and premia differ partially from those proposed in Shleifer and Vishny (1986). As an extension, an analysis of the wealth effects of changes in the control threshold, as implied by, e.g., supermajority rules and a mandatory bid rule, is conducted.
This paper re-examines the effects of the method of payment and type of offer on target abnormal returns around the takeover announcement, controlling for the target firms institutional ownership. Previous studies suggest the difference in announcement-period target returns between cash offers and stock exchange offers can be explained by the difference in capital gains tax liabilities of the target shareholders and/or the difference in the information effect of the method of payment. The empirical results indicate no relation between bid premiums (or target abnormal returns) and institutional ownership of the target firm in cash offers and a systematic difference in target returns between mergers and tender offers even after controlling for the method of payment. These results are inconsistent with both the tax hypothesis and the information effect hypothesis. The evidence suggests the likelihood of future competition might be higher in tender offers than in mergers. Copyright 1997 by MIT Press.
We examine parent-subsidiary mergers, transactions that do not entail arm's length bargaining or a change in control. These mergers are typically followed by considerable restructuring of subsidiaries. Minority and parent returns are not significantly different from returns at third party buyouts of parent-controlled subsidiaries, transactions that entail arm's length negotiations and a change in control. Buyer returns are negative, consistent with overbidding. We conclude that parent-subsidiary mergers facilitate corporate restructuring, foster the reallocation of resources toward higher valued uses, and increase value for both parent and subsidiary.
A number of recent research papers use two-stage procedures in lieu of a single multiple regression, in some cases purportedly as a solution to colinearity among independent variables. We demonstrate that, since collinearity is inherently a data problem rather than a statistical problem, no partitions of dependent or independent variables, orthogonal or otherwise, can provide insights into the relative influence of collinear variables. For the class of linear unbiased estimators this follows directly from the Gauss-Markov Theorem, but we demonstrate some of the results in detail as an aid to interpreting particular papers.
The market for corporate control is fundamentally changing the corporate landscape. Transactions in this market in 1985 were at a record level of $180 billion. These transactions involve takeovers, mergers, and leveraged buyouts. Closely associated are corporate restructurings involving divestitures, spinoffs, and large stock repurchases for cash and debt. The changes associated with these control transactions are causing considerable controversy. Some argue that takeovers are damaging to the morale and productivity of organizations and are therefore damaging to the economy. Others argue that takeovers represent productive entrepreneurial activity that improves the control and management of assets and helps move assets to more productive uses. The controversy has been accompanied by strong pressure on regulators and legislatures to enact restrictions that would curb activity in the market for corporate control. In the spring of 1985 there were over 20 bills under consideration in Congress that proposed new restrictions on takeovers. Within the past several years the legislatures of New York, New Jersey, Maryland, Pennsylvania, Connecticut, Illinois, Kentucky, and Michigan has passed antitakeover laws. The Federal Reserve Board entered the fray early in 1986 when it issued its controversial new interpretation of margin rules that restricts the use of debt in society. This paper analyzes the controversy surrounding takeovers and provides both theory and evidence to explain the central phenomena at issue. The paper is organized as follows. Section 2 contains basic background analysis of the forces operating in the market for corporate control -- analysis which provides an understanding of the conflicts and issues surrounding takeovers and the effects of activities in this market. Section 3 discusses the conflict between managers and shareholders over the payout of free cash flow and how takeovers represent both a symptom and a resolution of the conflict. Sections 4, 5, and 6 discuss the relatively new phenomena of, respectively, junk-bond financing, the use of golden parachutes, and the practice of greenmail. Section 7 analyzes the problems the Delaware court is having in dealing with the conflicts that arise over control issues and its confused application of the business judgment rule to these cases. The following topics are discussed: - The reasons for takeovers and mergers in the petroleum industry and why they increase efficiency and thereby promote the national interest. - The role of debt in bonding management's promises to pay out future cash flows, to reduce costs, and to reduce investments in low-return projects. - The role of high-yield debt (junk bonds) in helping to eliminate mere size as a takeover deterrent. - The effects of takeovers on the equity markets and claims that managers are pressured to behave myopically. - The effects of antitakeover measures such as poison pills. - The misunderstandings of the important role that golden parachutes play in reducing the conflicts of interests associated with takeovers and the valuable function they serve in alleviating some of the costs and uncertainty facing managers. - The damaging effects of the Delaware court decision in Unocal vs. Mesa that allowed Unocal to make a self-tender offer that excluded its largest shareholder (reverse greenmail). - The problems the courts are facing in applying the model of the corporation subsumed under the traditional business judgment rule to the conflicts of interest involved in corporate controversies.
This paper presents evidence that stockholder wealth declines on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure. The data also indicate that these corporate restructurings are typically quite large and that many are attempts by managers to create barriers specific to the hostile bidder and /or to consolidate a block of voting securities in the hands of management allies. The evidence suggests that defensive motives (whether beneficial or harmful) influence corporate asset and ownership structure.
This paper examines the effects of a common stock repurchase on the values of the repurchasing firm's common stock, debt and preferred stock, and attempts to identify the dominant factors underlying the observed value changes. The evidence indicates that significant increases in firm values occur within one day of a stock repurchase announcement. These value changes appear to be due principally to an information signal from the repurchasing firm. Common stockholders are the beneficiaries of virtually all of the value increments, but no class of securities examined declines in value as a result of the repurchase.
This dissertation explores the relationship between corporate combinations and selected provisions of the Internal Revenue Code. Corporate combinations are broadly defined to include mergers, stock acquisitions, and asset acquisitions where substantially all of the stock or assets of a corporation are acquired. The issue addressed is whether certain tax provisions, including those prescribing shareholder tax deferral, the carryover of net operating losses, and the step-up in tax basis, are correlated to the premium paid upon corporate combination. A regression analysis is conducted with a sample of combinations selected from the Federal Trade Commission's Large Merger Series. The independent variable is the premium paid to the shareholders of the acquired corporation upon corporate combination and it is represented by the percentage paid above the predicted value of the acquired stock. The explanatory variables in this regression are binary variables representing the existence of the tax attributes in any given combination. The regressions are statistically significant, although their explanatory power is relatively low. It is concluded from an analysis of the regression coefficients that the deferral of shareholder gains is correlated with a significant reduction in the premiums paid to the shareholders. Although it was not possible to reject the null hypotheses with respect to the step-up in tax basis and the carryover of net operating losses, the results indicate that these tax attributes might not be as important as previously thought. Indeed, it appears likely that the restrictions on net operating loss carryovers may be very effective in limiting their role in corporate combinations. The model and variables are also modified to explore the nature and causes of the observed relationships. From the results of this modification it appears possible that the estimates of the net operating loss are confounded by an unspecified variable or variables. One possibility is that the confounding is associated with the circumstances which gave rise to the tax loss. It is also apparent from the results that other tax attributes which carryover to the acquiring corporation may have a positive value reflected in the premium paid to the shareholders of the acquired corporation. DISSERTATION (PH.D.)--THE UNIVERSITY OF MICHIGAN Dissertation Abstracts International,
Stock repurchases by tender offer: Permanent stock price effects and changes in corporate control
- D Nn
- W H Mikkelson
- M M Partch
D.?nn, L.Y., W.H. Mikkelson, and M.M. Partch, 1987, Stock repurchases by tender offer: Permanent stock price effects and changes in corporate control, Unpublished manuscript (University of Oregon, Eugene, OR and University of Rochester, Rochester, NY).
Another look at the impact of accounting princ;ples board opinion no. 16: An empirical study, Mergers and Acquisitions
- F Raybum
Raybum, F., 1975, Another look at the impact of accounting princ;ples board opinion no. 16: An empirical study, Mergers and Acquisitions, Spring, 7-9.
Common stock repurchase: An analysis of returns to bondholders and stockholders
- Dann
Another look at the impact of accounting principles board opinion no. 16: An empirical study
- Rayburn