Riding the Hat Curve - Why Shareholders Should Tender Their Shares in Fixed Price Tender Repurchase Programs

Abstract

This paper analyzes the tendering decision of shareholders in fixed-price self-tender offers. We describe wealth-creating effects of repurchase programs and analyze factors affecting total shareholder returns. We derive a model predicting stock price changes around repurchase tender offers resulting in a characteristic "Hat Curve". This Hat Curve is confirmed in an empirical study on the French market. First, based on the theoretical model, rational shareholders will prefer to tender or sell their shares instead of holding them. Second, we conclude empirically that tendering is more attractive than selling in French tender repurchases, and that speculators can therefore benefit from abnormal returns around tender offers.