16 Pages Posted: 11 Apr 2012 Last revised: 25 Feb 2014
Date Written: January 15, 2014
A two-stage stock-financed merger occurs when an acquiring firm first issues shares, and then engages in a cash acquisition shortly afterward. Such deals allow us to test two important hypotheses derived from decoupling: by clienteles via segmentation and by time. The acquirer’s value is maximized by selling shares to investors preferring to hold them, and use the raised cash to pay the target shareholders (the decoupling by clienteles hypothesis). Two-stage deals also provide an option to the acquirers by allowing them to decouple their own shares from the correlated target’s shares by issuing at an earlier date and wait for good acquisition opportunities (the time decoupling hypothesis). We find empirical evidence in support of both hypotheses.
Keywords: decoupling hypothesis; market segmentation; mergers and acquisitions; method of payment; SEO/IPO; use of proceeds
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
Ang , James S. and Colak, Gonul and Zhang, Tai-Wei, Decoupling by Clienteles and by Time in the Financial Markets: The Case of Two-Stage Stock-Financed Mergers (January 15, 2014). Journal of Corporate Finance, Vol. 25, 2014. Available at SSRN: https://ssrn.com/abstract=2038465 or http://dx.doi.org/10.2139/ssrn.2038465