Merger Negotiations with Stock Market Feedback

Merger Negotiations with Stock Market Feedback

Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer valu...

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Bibliographic Details
Published in:The Journal of finance (New York) 2014-08, Vol.69 (4), p.1705-1745
Main Authors: BETTON, SANDRA, ECKBO, B. ESPEN, THOMPSON, REX, THORBURN, KARIN S.
Format: Article
Language:eng
Subjects:
Acquisitions & mergers
Bargaining
Bidding
Bids
Coefficients
Control loops
Corporate synergy
Costs
Investors
Linear regression
Markups
Mergers
Negotiations
Preliminary estimates
Securities markets
Stock markets
Stock prices
Studies
Take-overs
Tender offers
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Summary:Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Largesample tests support rational deal anticipation in runups while rejecting the costly feedback loop.
ISSN:0022-1082
1540-6261