Target Revaluation after Failed Takeover Attempts - Cash versus Stock
University of California, Berkeley - Department of Economics; 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
June 29, 2012
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 by 15% after deal failure, whereas stock targets return to their pre-announcement level. Employing the news-search classification of Savor and Lu (2009), we find that this result holds when failure is exogenous to the target's stand-alone value. The differences in revaluation do not revert over longer horizons. We analyze the role of future takeover activities in explaining these differences. Compared to a set of matched control firms, the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years. Between cash and stock targets, however, we find no differences in the timing or the value of future offers. Our results suggest that cash bids reveal positive information about the stand-alone value of the target.
Number of Pages in PDF File: 42
Keywords: mergers & acquisitions, synergies, misvaluation, revaluation, medium of exchange
JEL Classification: G14, G34, D03, D82working papers series
Date posted: March 15, 2011 ; Last revised: July 19, 2014
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