What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies

Hietala, Pekka; Kaplan, Steven N.; Robinson, David T.

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What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies

NBER Working Paper No. w9264

44 Pages Posted: 11 Oct 2002 Last revised: 26 Oct 2022

See all articles by Pekka Hietala

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

There are 3 versions of this paper

Date Written: October 2002

Abstract

We present a framework for determining the information that can be extracted from stock prices around takeover contests. In only two types of cases is it theoretically possible to use stock price movements to infer bidder overpayment and relative synergies. The takeover contest for Paramount in 1994 illustrates one of these generic cases. We estimate that Viacom, the winning' bidder, overpaid for Paramount by more than $2 billion. This occurred despite the fact that Viacom's CEO owned roughly 3/4 of Viacom. These results are consistent with managerial overconfidence and/or large private benefits, but not with the traditional agency-based incentive problem.

Suggested Citation: Suggested Citation

Hietala, Pekka and Kaplan, Steven Neil and Robinson, David T., What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies (October 2002). NBER Working Paper No. w9264, Available at SSRN: https://ssrn.com/abstract=338871