Strategic and Financial Bidders in Takeover Auctions

Abstract:     
Using detailed data on the process of takeover auctions and applying a novel empirical methodology, we estimate valuations of strategic and financial bidders from their formal and informal bids. Our results are inconsistent with the view that strategic bidders should always have higher valuations than financial bidders because they can generate synergies. While strategic bidders have higher valuations on average, we estimate that 22.4% of targets are valued more by financial bidders. These are mature poorly-performing companies. We also find that: (i) valuations of financial bidders are correlated with aggregate economic conditions; and (ii) valuations of strategic bidders are more dispersed within auctions. Our results suggest the market segmentation view, under which different targets appeal to different groups of bidders.

Number of Pages in PDF File: 76

Keywords: Mergers and Acquisitions, Strategic Bidders, Financial Bidders, Takeover Auctions

JEL Classification: D44, G32, G34

Accepted Paper Series