Markup Pricing Revisited

43 Pages Posted: 17 Mar 2008 Last revised: 9 Nov 2018

See all articles by Sandra Betton

Sandra Betton

Concordia University, Quebec - Department of Finance

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Karin S. Thorburn

Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: April 1, 2008

Abstract

We examine whether pre-bid target stock price runups lower bidder takeover gains and deter short-term toehold purchases in the runup period. A dollar increase in the runup raises the initial offer price by $0.80 (markup pricing). Bidder gains, while decreasing in offer price markups, are increasing in runups, suggesting that runups are interpreted by the negotiating parties as reflecting increases in target stand-alone values. We also show that short-term toehold purchases increase runups. However, when purchased by the initial bidder (as opposed to by other investors), short-term toeholds lower markups, possibly because they provide evidence to the target that the runup anticipates the pending offer premium (supporting substitution between the runup and the markup). We conclude that markup pricing per se is unlikely to deter short-term toehold aquisitions.

Keywords: Bidder returns, target runup, takeover, markup pricing, toehold bidding

JEL Classification: G3, G34

Suggested Citation

Betton, Sandra and Eckbo, B. Espen and Thorburn, Karin S., Markup Pricing Revisited (April 1, 2008). Tuck School of Business Working Paper No. 2008-45; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 199. Available at SSRN: https://ssrn.com/abstract=1094946 or http://dx.doi.org/10.2139/ssrn.1094946

Sandra Betton

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada
514-848-2783 (Phone)
514-848-4500 (Fax)

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)

HOME PAGE: http://www.tuck.dartmouth.edu/eckbo

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Karin S. Thorburn

Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
+4755959283 (Phone)

HOME PAGE: http://www.nhh.no/cv/thorburn

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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