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Target Revaluation after Failed Takeover Attempts - Cash versus Stock

39 Pages Posted: 15 Mar 2011 Last revised: 5 Mar 2015

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Marcus M. Opp

Stockholm School of Economics - Department of Finance

Farzad Saidi

Stockholm School of Economics; Centre for Economic Policy Research (CEPR)

Date Written: March 3, 2015

Abstract

Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and show that targets of cash offers are revalued on average by 15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences.While the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years than matched control firms, there are no differences between cash and stock targets, neither in the timing nor in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley et al., 1983) by identifying a "look-ahead" bias built into their sample construction.

Keywords: mergers & acquisitions, synergies, misvaluation, revaluation, medium of exchange

JEL Classification: G14, G34, D03, D82

Suggested Citation

Malmendier, Ulrike and Opp, Marcus M. and Saidi, Farzad, Target Revaluation after Failed Takeover Attempts - Cash versus Stock (March 3, 2015). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1785942 or http://dx.doi.org/10.2139/ssrn.1785942

Ulrike Malmendier

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
(510) 642-8724 (Phone)
(510) 642-6615 (Fax)

HOME PAGE: http://www.econ.berkeley.edu/~ulrike/

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=918

Marcus M. Opp (Contact Author)

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm
Sweden

Farzad Saidi

Stockholm School of Economics ( email )

Stockholm
Sweden

HOME PAGE: http://www.farzadsaidi.com

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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