Target Revaluation after Failed Takeover Attempts – Cash Versus Stock

40 Pages Posted: 7 Jul 2012

See all articles by Ulrike Malmendier

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; Swedish House of Finance

Farzad Saidi

New York University (NYU)

Date Written: July 2012

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, Desai, and Kim, 1983) by identifying a "look-ahead" bias built into their sample construction.

Suggested Citation

Malmendier, Ulrike and Opp, Marcus M. and Saidi, Farzad, Target Revaluation after Failed Takeover Attempts – Cash Versus Stock (July 2012). NBER Working Paper No. w18211, Available at SSRN: https://ssrn.com/abstract=2101958

Ulrike Malmendier (Contact Author)

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

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Marcus M. Opp

Stockholm School of Economics - Department of Finance ( email )

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Swedish House of Finance

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Farzad Saidi

New York University (NYU) ( email )

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