Top-Up Options and Tender Offers

59 Pages Posted: 10 Jun 2014

See all articles by Erik Devos

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

William B. Elliott

John Carroll University

Hilmi Songur

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

Date Written: June 9, 2014

Abstract

We investigate the role of top-up options granted by target managers to bidders in tender offers. A top-up option enables bidders to bypass target shareholder consent and allows for relatively fast execution of the tender offer. Our evidence, from 456 tender offers announced during 2000-2012 suggests that deals with top-up options are detrimental to both bidder and target shareholders, when compared to tender offers without the top-up feature. This effect seems to be concentrated in the pre-2007 period. After 2006 a large majority of tender offers include top-up options. We also find that the use of top-up options is negatively related to the use of lock-up options in the early period. In the later period of our sample, when lock-up options were no longer used in tender offers, toeholds are negatively related to the use of top-up options. Moreover, top-up option increases the speed of deal completion and are associated with less hostility, higher target free cash flows, and higher termination fees. Overall we conclude that the use of top-up options is most consistent with anti-competitive hypothesis.

Keywords: tender offers, top-up options, mergers, M&A

JEL Classification: G34

Suggested Citation

Devos, Erik and Elliott, William B. and Songur, Hilmi, Top-Up Options and Tender Offers (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2448058

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915 747 7770 (Phone)

HOME PAGE: http://utminers/utep.edu/hdevos

William B. Elliott (Contact Author)

John Carroll University ( email )

University Heights, OH 44118
United States

Hilmi Songur

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States

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