Irrevocable Commitments and Tender Offer Outcomes

41 Pages Posted: 19 Oct 2018 Last revised: 21 Dec 2018

Date Written: December 20, 2018

Abstract

Irrevocable commitments (ICs) are undertakings by target firm blockholders to accept an upcoming takeover bid before its announcement. Using a novel manually-collected dataset, we develop three new hypotheses and explore one existing hypothesis to explain the use of ICs: (1) trade-off between speed and price; (2) trade-off between completion probability and price; (3) differences in bargaining power, and (4) blockholder certification. Compared to transactions without ICs, transactions with ICs have 9-11% higher probability of tender offer completion, 2-8 days shorter bid duration, and 4.7 percentage points lower target cumulative average abnormal returns within days [-1, 1]. Overall, the results are most consistent with the second hypothesis. The results also offer partial evidence in favor of the certification hypothesis.

Keywords: irrevocable commitments, deal-protection devices, acquisitions, tender offers

JEL Classification: G34

Suggested Citation

Fyrqvist, Tomi and Rantapuska, Elias Henrikki and Torstila, Sami, Irrevocable Commitments and Tender Offer Outcomes (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=3259936 or http://dx.doi.org/10.2139/ssrn.3259936

Tomi Fyrqvist

Alibaba Group ( email )

Elias Henrikki Rantapuska

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Sami Torstila (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland
+358 40 353 8069 (Phone)

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