Bond Tender Offers in Mergers and Acquisitions
Matthew T. Billett
Indiana University - Kelley School of Business - Department of Finance
August 13, 2014
AFA 2012 Chicago Meetings Paper
We explore the motives and consequences of bond tender offers announced in connection with mergers and acquisitions (M&A). We find merging firms use bond tender offers strategically to renegotiate with bondholders, reduce leverage, eliminate covenants, and curtail the co-insurance benefits associated with acquisitions. The decision to make a tender offer for one bond issue influences the wealth effects of other issues. Bondholder wealth effects depend not only the bonds characteristics, but also on the characteristics of sibling bonds. Finally, the use of bond tender offers in M&A is associated with increased likelihood of deal consummation and lower acquisition premium.
Number of Pages in PDF File: 32
Keywords: Mergers; Acquisitions; Bond tender offers; Co-insurance; Covenant
JEL Classification: G34, G32
Date posted: March 15, 2011 ; Last revised: August 14, 2014
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