Stealth Acquisitions and Product Market Competition

81 Pages Posted: 30 Jan 2021 Last revised: 16 Mar 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: March 15, 2021

Abstract

This study examines the extent to which firms structure their merger and acquisition (M&A) deals to avoid scrutiny from antitrust regulators in order to better understand how certain corporate deals alter firms’ competitive landscapes. We find that a higher-than-expected number of M&A deals are structured to narrowly avoid antitrust scrutiny, and that these “stealth acquisitions” are driven by acquisitions of private targets that entail contractual terms with lower deal premiums that facilitate avoidance of antitrust review, payoff functions that allow for more discretion in assigning deal values, and additional compensation for managers of target firms (e.g., via post-acquisition employment). Finally, we find several patterns of evidence consistent with stealth acquisitions reducing product market competition, as the equity values of acquiring firms’ competitors increase following stealth acquisitions, and detailed micro-level product pricing data reveals increased product prices following a stealth acquisition by rivals. Our results suggest that firms can successfully manipulate M&A deals to avoid antitrust scrutiny, thereby leading 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 (March 15, 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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