Stealth Acquisitions and Product Market Competition

74 Pages Posted: 30 Jan 2021 Last revised: 27 Aug 2021

See all articles by John D. Kepler

John D. Kepler

Stanford Graduate School of Business

Vic Naiker

University of Melbourne - Faculty of Business and Economics

Christopher R. Stewart

University of Chicago - Booth School of Business

Date Written: August 26, 2021

Abstract

We examine whether and how firms structure their merger and acquisition (M&A) deals to avoid scrutiny from antitrust regulators. There are approximately 40% more M&As than expected bunching just below thresholds that trigger antitrust review. These “stealth acquisitions” tend to involve acquisitions of private targets with terms in financial and governance contracts that afford greater scope for negotiating and assigning lower deal values such as contingent payments, additional compensation for target managers (e.g., post-acquisition employment) and extending target director and officer insurance. Consistent with stealth acquisitions reducing product market competition, we show that the equity values, gross margins, and common product prices of acquiring firms and their competitors increase following such acquisitions, but no such evidence following similar acquisitions that do undergo antitrust review. Our results suggest that acquirers successfully manipulate M&A deals to avoid antitrust scrutiny, thereby benefiting their own shareholders but potentially harming consumers due to anticompetitive behavior.

Keywords: Mergers and Acquisitions, Antitrust, Rivals, Product Market Competition

JEL Classification: G34, G38, K21, L12, L41

Suggested Citation

Kepler, John and Naiker, Vic and Stewart, Christopher R., Stealth Acquisitions and Product Market Competition (August 26, 2021). Available at SSRN: https://ssrn.com/abstract=3733994 or http://dx.doi.org/10.2139/ssrn.3733994

John Kepler (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Vic Naiker

University of Melbourne - Faculty of Business and Economics ( email )

198 Berkeley Street
Melbourne, Victoria, 3010
Australia

Christopher R. Stewart

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States

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