'She Is Mine': Determinants and Value Effects of Early Announcements in Takeovers

54 Pages Posted: 26 Nov 2016 Last revised: 24 Mar 2018

Nihat Aktas

WHU - Otto Beisheim School of Management

Guosong Xu

WHU - Otto Beisheim School of Management

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Date Written: March 19, 2018

Abstract

Some bidders voluntarily announce a merger negotiation before the definitive agreement. We propose an “announce-to-signal” explanation to these early announcements: they allow bidders to signal to target shareholders high synergies so as to overcome negotiation frictions and improve success rates. Consistent with signaling, we show that negotiation frictions predict earlier announcements. Early announced transactions are associated with higher expected synergies, offer premium, completion rates, and public competition. Moreover, bidder announcement returns do not suggest overpayment and the existence of agency issues in these transactions. Taken collectively, our findings rule out alternative explanations such as managerial learning from investors and jump bidding.

Keywords: Mergers and Acquisitions, Early Announcement, Signal, Negotiation Frictions

JEL Classification: D01; D82; G34

Suggested Citation

Aktas, Nihat and Xu, Guosong and Yurtoglu, B. Burcin, 'She Is Mine': Determinants and Value Effects of Early Announcements in Takeovers (March 19, 2018). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2874336 or http://dx.doi.org/10.2139/ssrn.2874336

Nihat Aktas

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Guosong Xu (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Vallendar
Germany

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management ( email )

Chair of Corporate Finance
Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509-721 (Phone)
+49 261 6509-729 (Fax)

HOME PAGE: http://www.whu.edu/forschung/fakultaet/finance-group/corporate-finance/

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