Irrevocable Commitments and Tender Offer Outcomes
41 Pages Posted: 19 Oct 2018 Last revised: 21 Dec 2018
Date Written: December 20, 2018
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: Suggested Citation