Inside the 'Black Box' of Private Merger Negotiations

82 Pages Posted: 30 May 2019 Last revised: 18 Feb 2020

See all articles by Tingting Liu

Tingting Liu

Iowa State University

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems

Date Written: October 1, 2019

Abstract

This paper provides a detailed look inside the “black box” of merger and acquisition (M&A) negotiations before the first public bid is announced. We find that bid revisions are very common in the pre-public phase of a deal, and that both fundamental news about the target firm, and the public-market reaction to that news, during the private negotiation process have a significant impact on bidders’ acquisition costs. We also investigate whether the nature of the bid process has an impact on pre-public takeover price revisions and examine the strategic difference in bidding in deals that are initiated privately by a bidder other than the winning bidder. We interpret our results as consistent with the notion that the behavior of target managers in the private negotiation window appears congruent with shareholder wealth maximization (and inconsistent with systematic agency problems).

Keywords: Merger and acquisition (M&A) private negotiations, bid revisions, deal initiation, shareholder wealth

JEL Classification: G34, G30

Suggested Citation

Liu, Tingting and Officer, Micah S., Inside the 'Black Box' of Private Merger Negotiations (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3383209 or http://dx.doi.org/10.2139/ssrn.3383209

Tingting Liu (Contact Author)

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

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