Do Private Equity Consortiums Facilitate Collusion in Takeover Bidding?

68 Pages Posted: 22 Jan 2015

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business

J. Harold Mulherin

University of Georgia - Department of Banking and Finance

Date Written: June 1, 2011

Abstract

We address whether the joint bidding by private equity consortiums facilitates collusion in the takeover market. We employ a sample of 870 takeovers of publicly traded targets in the 2003 to 2007 period, the time period which is the focus of investigation by the Justice Department and the source of cases for class action lawsuits. A unique aspect of our analysis is that we determine the identification of private equity bidders from actual merger documents rather than rely on sources such as Securities Data Corp and that we analyze both prominent private equity bidders as well as smaller private equity firms. Our analysis finds competitive reasons for consortium formation based on scale, risk and bidder expertise. We also find that both single private equity bidders and private equity consortiums are associated with significantly greater levels of takeover competition than other types of bidders. While we find some evidence that target abnormal returns are lower in private equity consortium deals for narrow windows around the initial takeover-related announcement date, we find that these results do not hold for longer event windows that better account for the differences in the takeover process across types of bidders. Analysis that controls for the endogenous selection of consortium formation also fails to find any negative effect of consortiums on either takeover competition or target returns. We also do not find any negative effects of consortiums formed by prominent private equity firms. We interpret the evidence to be inconsistent with a collusive explanation for consortium formation in the 2003 to 2007 period and to be consistent with competitive reasons for consortium formation.

Keywords: takeover auctions; private equity; joint bidding; collusion; consortiums

JEL Classification: G34; D44

Suggested Citation

Boone, Audra and Mulherin, J. Harold, Do Private Equity Consortiums Facilitate Collusion in Takeover Bidding? (June 1, 2011). Journal of Corporate Finance, Vol. 17, No. 1, 2011. Available at SSRN: https://ssrn.com/abstract=2553020

Audra Boone (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

J. Harold Mulherin

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-3644 (Phone)

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