34 Pages Posted: 15 Mar 2011 Last revised: 3 Aug 2016
Date Written: July 28, 2016
We explore the motives and consequences of bond tender offers announced in connection with mergers and acquisitions (M&A). We find merging firms use bond tender offers strategically to renegotiate with bondholders to gain financial flexibility by reducing leverage and eliminating covenants, and to curtail the coinsurance benefits associated with M&A. Moreover, we find bondholder wealth effects depend not only on the bond’s own characteristics, but also on the characteristics of its sibling bonds. Finally, the use of bond tender offers in M&A is associated with increased likelihood of deal consummation and lower acquisition premiums.
Keywords: Mergers; Acquisitions; Bond tender offers; Coinsurance; Covenants
JEL Classification: G34, G32
Suggested Citation: Suggested Citation
Billett, Matthew T. and Yang, Ke, Bond Tender Offers in Mergers and Acquisitions (July 28, 2016). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1785715 or http://dx.doi.org/10.2139/ssrn.1785715
By Tom Nohel