Target Revaluation after Failed Takeover Attempts - Cash versus Stock
University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Marcus M. Opp
University of California, Berkeley - Finance Group
University of Cambridge
March 3, 2015
Journal of Financial Economics (JFE), Forthcoming
Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and show that targets of cash offers are revalued on average by 15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences.While the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years than matched control firms, there are no differences between cash and stock targets, neither in the timing nor in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley et al., 1983) by identifying a "look-ahead" bias built into their sample construction.
Number of Pages in PDF File: 39
Keywords: mergers & acquisitions, synergies, misvaluation, revaluation, medium of exchange
JEL Classification: G14, G34, D03, D82
Date posted: March 15, 2011 ; Last revised: March 5, 2015
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