Do Private Equity Consortiums Facilitate Collusion in Takeover Bidding?
Audra L. Boone
Texas A&M University - Department of Finance
J. Harold Mulherin
University of Georgia - Department of Banking and Finance
AFA 2009 San Francisco Meetings Paper
We study the impact of the heightened presence in recent years of private equity bidders on corporate takeovers. In particular, we address the question as to whether the joint bidding by private equity consortiums facilitates collusion in the takeover market. We study a sample of 870 takeovers of publicly traded targets in the 2003 to 2007 period, the time period which is the focus of investigation by the Justice Department and the source of cases for class action lawsuits.A unique aspect of our analysis is that we determine the identification of private equity bidders from actual merger documents rather than rely on sources such as Securities Data Corp and that we analyze both prominent private equity bidders as well as smaller private equity firms. We find that both single private equity bidders and private equity consortiums are associated with significantly greater levels of takeover competition than other types of bidders. And while we find some evidence that target abnormal returns are lower in private equity consortium deals for narrow windows around the initial takeover-related announcement date, we find that these results do not hold for longer event windows that better account for the differences in the takeover process across types of bidders. We also find competitive reasons for consortium formation based on scale, risk and bidder expertise. And analysis that controls for the endogenous selection of consortium formation also fails to find any negative effect of consortiums on either takeover competition or target returns. We also do not find any negative effects of consortiums formed by prominent private equity firms or consortiums formed prior to 2006 when the U.S. Department of Justice publicly announced an investigation of potential collusion in the takeover market. We interpret the evidence to be inconsistent with a collusive explanation for consortium formation in the 2003 to 2007 period and to be consistent with competitive reasons for consortium formation.
Number of Pages in PDF File: 70
Keywords: takeover auctions, private equity, joint bidding, collusion, consortiums
JEL Classification: G34, D44working papers series
Date posted: March 9, 2008 ; Last revised: October 18, 2011
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