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Bond Tender Offers in Mergers and Acquisitions

34 Pages Posted: 15 Mar 2011 Last revised: 3 Aug 2016

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Ke Yang

Lehigh University

Date Written: July 28, 2016

Abstract

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

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

Matthew T. Billett (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Ke Yang

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
6107583684 (Phone)
6107586429 (Fax)

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