How Do Acquirers Choose between Mergers and Tender Offers?

52 Pages Posted: 1 Nov 2014 Last revised: 26 Feb 2016

David Offenberg

Loyola Marymount University - Department of Finance

Christo A. Pirinsky

University of Central Florida

Date Written: May 31, 2015

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

Suggested Citation

Offenberg, David and Pirinsky, Christo Angelov, How Do Acquirers Choose between Mergers and Tender Offers? (May 31, 2015). Journal of Financial Economics (JFE), 116(2), 331-348, 2015. Available at SSRN: https://ssrn.com/abstract=2516982

David Offenberg (Contact Author)

Loyola Marymount University - Department of Finance ( email )

1 LMU Dr.
MS 8385
Los Angeles, CA 90045
United States

HOME PAGE: http://cba.lmu.edu/faculty?expert=david.offenbergphd

Christo Angelov Pirinsky

University of Central Florida ( email )

College of Business Administration/Finance
PO Box 161400
Orlando, FL FL 32816
United States
407-823-5962 (Phone)

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