M&A Rumors: Why Sellers Hate Them

Abstract

We provide large sample evidence on the causes and consequences of takeover rumors. In fact, 55.2% of non-completed M&A deals involve rumors, while only 17.3% of completed deals involve them. Probit regression models reveal that rumors are deal-breakers and reduce the likelihood of deal completion by 37-41%. Simultaneous equations confirm this result, even if rumors are not exogenous events but instead spread on purpose; e.g., in an attempt to prevent an M&A transaction or if caused by unobservable effects. If a rumored transaction still emerges, the rumor has destroyed $7.8 million worth of the value of the median M&A deal.