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Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions

44 Pages Posted: 14 Jan 2016 Last revised: 14 Sep 2017

Sangwon Lee

University of Houston, Department of Finance, Students

Vijay Yerramilli

University of Houston, C. T. Bauer College of Business

Date Written: August 7, 2017

Abstract

We show that M&A deals that are announced when the bidder's relative value (ratio of bidder's equity value to target's equity value) is closer to its 52-week high feature higher offer premium, lower (higher) announcement returns for the bidding (target) firm, and are more likely to fail, all else equal. Yet, bidders in such deals also experience large abnormal returns in the two-year period surrounding the announcement. Our results suggest that bidders strategically choose announcement timing to exploit relative misvaluation, and cast doubt on the idea that announcement returns represent the gains to long-term shareholders of bidding firms.

Keywords: Relative value, Mergers and acquisitions, Market Timing, Misvaluation, Announcement Timing

JEL Classification: G34, G14

Suggested Citation

Lee, Sangwon and Yerramilli, Vijay, Relative Values, Announcement Timing, and Shareholder Returns in Mergers and Acquisitions (August 7, 2017). Available at SSRN: https://ssrn.com/abstract=2714572 or http://dx.doi.org/10.2139/ssrn.2714572

Sangwon Lee

University of Houston, Department of Finance, Students ( email )

Houston, TX
United States

Vijay Yerramilli (Contact Author)

University of Houston, C. T. Bauer College of Business ( email )

Houston, TX 77204
United States
713-743-2516 (Phone)

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