Abstract

http://ssrn.com/abstract=2258535
 
 

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No Free Shop: Why Target Companies in MBOs and Private Equity Transactions Sometimes Choose Not to Buy 'Go-Shop' Options


Adonis Antoniades


European Central Bank

Charles W. Calomiris


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

Donna M. Hitscherich


Columbia Business School - Finance and Economics

April 28, 2014

Columbia Business School Research Paper No. 13-25

Abstract:     
We study the decisions by targets in private equity and MBO transactions whether to actively “shop” executed merger agreements prior to shareholder approval. Specifically, targets can negotiate for a 'go-shop' clause, which permits the solicitation of offers from other would-be acquirors during the “go-shop” window and, in certain circumstances, lowers the termination fee paid by the target in the event of a competing bid. We find that the decision to retain the option to shop is predicted by various firm attributes, including larger size, more fragmented ownership, and various characteristics of the firms’ legal advisory team and procedures. We find that go-shops are not a free option; they result in a lower initial acquisition premium and that reduction is not offset by gains associated with new competing offers. The over-use of go-shops reflects excessive concerns about litigation risks, possibly resulting from lawyers’ conflicts of interest in advising targets.

Number of Pages in PDF File: 58

Keywords: Private equity, management buyouts, mergers, acquisitions, offer premium, cumulative abnormal returns, conflicts, litigation risk, lawyers, merger agreements, go-shop, special committee

JEL Classification: G32, G34, K22

working papers series


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Date posted: May 2, 2013 ; Last revised: April 29, 2014

Suggested Citation

Antoniades, Adonis and Calomiris, Charles W. and Hitscherich, Donna M., No Free Shop: Why Target Companies in MBOs and Private Equity Transactions Sometimes Choose Not to Buy 'Go-Shop' Options (April 28, 2014). Columbia Business School Research Paper No. 13-25. Available at SSRN: http://ssrn.com/abstract=2258535 or http://dx.doi.org/10.2139/ssrn.2258535

Contact Information

Adonis Antoniades
European Central Bank ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
Charles W. Calomiris (Contact Author)
Columbia University - Columbia Business School ( email )
3022 Broadway
601 Uris, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Donna M. Hitscherich
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

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