Costly Renegotiation in Merger Deals

23 Pages Posted: 24 Feb 2020 Last revised: 25 Jan 2021

See all articles by Davidson Heath

Davidson Heath

University of Utah - David Eccles School of Business

Mark L. Mitchell

University of Chicago - Booth School of Business; AQR Capital Management, LLC; CNH Partners

Date Written: December 20, 2020

Abstract

We investigate costly renegotiation in large corporate mergers. We document that merger deals to be paid in cash tend to be renegotiated when the market rises, but cancelled when the market crashes, yet there are no such effects for deals to be paid in the acquiror's stock. These results are not explained by alternative mechanisms such as adverse selection or stock mispricing. Variation in renegotiation risk affects the market for corporate control, altering the method of payment, premium paid, and the rms that are targeted and acquired.

Keywords: mergers, acquisitions, completion, cancellation, market crashes, real effects, strategic default, method of payment, interim risk, definitive agreement

JEL Classification: G34, G30, K22

Suggested Citation

Heath, Davidson and Mitchell, Mark L., Costly Renegotiation in Merger Deals (December 20, 2020). Available at SSRN: https://ssrn.com/abstract=3526931 or http://dx.doi.org/10.2139/ssrn.3526931

Davidson Heath (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Mark L. Mitchell

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

CNH Partners ( email )

One Greenwich Plaza
2nd Floor
Greenwich, CT 06830
United States
(203) 742-3001 (Phone)

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