Top-Up Options and Tender Offers
59 Pages Posted: 10 Jun 2014
Date Written: June 9, 2014
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: Suggested Citation