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
New York University (NYU)
June 29, 2012
Our paper analyzes revaluation and subsequent takeover activity of targets involved in failed takeover attempts between 1980 and 2008. Targets of cash offers are revalued by 15% after deal failure, whereas stock targets revert to pre-announcement levels. This result also holds for deals where failure is exogenous to the target's stand-alone value employing the news-search classification of Savor and Lu (2009). Targets of previously failed transactions are significantly more likely to be taken over relative to matched control firms over a horizon of up to 7 years. However, despite differential revaluation, cash and stock targets exhibit similar subsequent takeover activity as measured by the timing and valuation of future offers. We also do not find evidence for differential stock market performance post failure, even for targets that remain independent. These results are consistent with theories in which the medium of exchange partially signals information about the stand-alone value.
Number of Pages in PDF File: 46
Keywords: mergers & acquisitions, synergies, misvaluation, revaluation, medium of exchange
JEL Classification: G14, G34, D03, D82working papers series
Date posted: March 15, 2011 ; Last revised: January 5, 2014
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