How Do Acquirers Choose between Mergers and Tender Offers?

Abstract

Tender offers provide the advantage of substantially faster completion times than mergers. However, a tender offer signals to the target higher demand for its shares and raises its reservation price. In equilibrium, bidders trade-off speed and cost. Consistent with this theory, we show that deals in more competitive environments and deals with fewer external impediments on execution are more likely to be structured as tender offers. Tender offers also require higher premiums than mergers. Finally, the rivals of the bidding firm realize significantly lower announcement returns and subsequent operating performance in tender offers than in mergers.

Keywords: tender offers, takeover premiums, mergers and acquisitions, termination fees, arbitrage spreads

JEL Classification: G34, J50, K22, L1, L4, M21