Abstract

http://ssrn.com/abstract=2258535
 
 

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No Free Shop: Why Target Companies Sometimes Choose Not to Buy ‘Go-Shop’ Options


Adonis Antoniades


National University of Singapore (NUS) - Department of Finance

Charles W. Calomiris


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

Donna M. Hitscherich


Columbia Business School - Finance and Economics

July 11, 2016

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. 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 may lower the termination fee paid by the target in the event of a competing bid. The decision to retain the option to shop is predicted by various firm attributes, including larger size and more fragmented ownership. Go-shops are not a free option. We exploit the impact of various characteristics of the firm's legal advisory team and procedures on the probability of inclusion of a go-shop provision to establish a negative relationship between go-shop provisions and initial acquisition premia. Importantly, that loss to shareholder value is not offset by gains associated with new competing offers. We conclude that the increased-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: 59

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


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Date posted: May 2, 2013 ; Last revised: July 12, 2016

Suggested Citation

Antoniades, Adonis and Calomiris, Charles W. and Hitscherich, Donna M., No Free Shop: Why Target Companies Sometimes Choose Not to Buy ‘Go-Shop’ Options (July 11, 2016). 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
National University of Singapore (NUS) - Department of Finance ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
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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