Abstract

http://ssrn.com/abstract=1942231
 
 

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Using Option Prices to Infer Overpayments and Synergies in M&A Transactions


Kathryn Barraclough


Vanderbilt University - Finance

David T. Robinson


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Tom Smith


University of Queensland; Financial Research Network (FIRN)

Robert E. Whaley


Vanderbilt University - Finance

October 11, 2011

Vanderbilt Owen Graduate School of Management Research Paper No. 2012-02

Abstract:     
In this paper, we use call option prices to identify synergies and news from merger and acquisition (M&A) transaction announcements. We find that M&A announcements result in large and approximately equal gains to the bidder and the target on average, with the combined gains being large enough to justify the premium paid to target shareholders. On average, M&A announcements release good news about targets, but bad news about bidders. This suggests that market prices understate true synergy gains, and helps reconcile the generally negative market-based evidence on value-creation in takeovers with their continued prominence in everyday business strategy.

Number of Pages in PDF File: 47

Keywords: takeover offers, option-implied values for bidder and target gains and news

JEL Classification: G30, G34, C51

working papers series


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Date posted: October 12, 2011 ; Last revised: December 12, 2012

Suggested Citation

Barraclough, Kathryn and Robinson, David T. and Smith, Tom and Whaley, Robert E., Using Option Prices to Infer Overpayments and Synergies in M&A Transactions (October 11, 2011). Vanderbilt Owen Graduate School of Management Research Paper No. 2012-02. Available at SSRN: http://ssrn.com/abstract=1942231 or http://dx.doi.org/10.2139/ssrn.1942231

Contact Information

Kathryn Barraclough
Vanderbilt University - Finance ( email )
401 21st Avenue South
Nashville, TN 37203
United States

David T. Robinson
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-8023 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tom M. Smith
University of Queensland ( email )
4072 Brisbane, Queensland
Australia
Financial Research Network (FIRN) ( email )
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert E. Whaley (Contact Author)
Vanderbilt University - Finance ( email )
401 21st Avenue South
Nashville, TN 37203
United States
615-343-7747 (Phone)
615-376-8879 (Fax)

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