Does Merger Structure Matter?

Abstract:     
A friendly merger can be structured as a one-step transaction or a two-step transaction. For a variety of reasons, such as the fast speed with which two-step mergers are completed, there are concerns about whether target shareholders are disadvantaged by this structure in comparison with one-step mergers. Controlling for deal and firm characteristics and the endogenous nature of the choice of transaction form, we find no evidence of detrimental effects of two-step mergers on target shareholders. Our findings suggest that at least some one-step mergers could benefit from using the two-step structure. We provide several explanations for the continued use of one-step mergers.

Number of Pages in PDF File: 40

Keywords: mergers, merger structure, two-step mergers, negotiated tender offers, shareholder wealth effects, securities and exchange commission’s “best-price” rule

JEL Classification: G34, K22

Accepted Paper Series