Irrevocable Commitments and Tender Offer Outcomes
58 Pages Posted: 19 Oct 2018 Last revised: 25 Sep 2020
Date Written: September 24, 2020
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. Transactions with more than 20% of shares irrevocably committed have a 7–16% higher probability of tender offer completion and 8–10 days shorter bid duration. A transaction with an average-sized irrevocable commitment is associated with a 2.9 percentage points lower four-week bid premium than a transaction with no irrevocable commitment. Overall, the results appear most consistent with the hypothesis on completion probability versus price. The results also offer partial evidence in favor of the certification hypothesis.
Keywords: irrevocable commitments, deal-protection devices, mergers and acquisitions, tender offers
JEL Classification: G34
Suggested Citation: Suggested Citation