The Role of Target Termination Fees in REIT Mergers

Journal of Real Estate Finance and Economics, Forthcoming

50 Pages Posted: 12 Dec 2019 Last revised: 6 Feb 2020

See all articles by Sridhar Gogineni

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business

Pawan Jain

University of Wyoming - College of Business - Department of Economics and Finance

Date Written: November 25, 2019

Abstract

Target termination fee provisions are widely used in merger agreements and require the target firm to pay the bidder a fixed cash fee in the event the target firm backs out of the agreement. We examine the determinants and consequences of target termination fee provisions in REIT mergers and test the competing agency and efficient contracting hypothesis. We find that target termination fee provisions are more likely in hard to value targets, that is, in deals involving large targets, targets with high leverage, and firms that were not targets of a takeover attempt in the recent past. Our results also suggest that target termination fee provisions are associated with higher offer premiums, announcement period returns, and higher deal completion rates. Collectively, our results indicate that termination fee provisions are used as effective contractual devices in REIT mergers to further target shareholder interests.

Keywords: Termination Fees, REIT, Contracting, Mergers

JEL Classification: G34, R30

Suggested Citation

Gogineni, Sridhar and Jain, Pawan, The Role of Target Termination Fees in REIT Mergers (November 25, 2019). Journal of Real Estate Finance and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3493183 or http://dx.doi.org/10.2139/ssrn.3493183

Sridhar Gogineni (Contact Author)

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Tampa, FL 33606-1490
United States
8132533163 (Phone)

Pawan Jain

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States

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