Stealth Acquisitions and Product Market Competition

108 Pages Posted: 30 Jan 2021 Last revised: 29 Jun 2022

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: June 27, 2022

Abstract

We examine whether and how firms structure their merger and acquisition deals (M&As) to avoid antitrust scrutiny. There are approximately 40% more M&As than expected just below deal value thresholds that trigger antitrust review. These “stealth acquisitions” tend to involve financial and governance contract terms that afford greater scope for negotiating and assigning lower deal values. We also show that the equity values, gross margins, and product prices of acquiring firms and their competitors increase following such acquisitions. Our results suggest that acquirers manipulate M&As to avoid antitrust scrutiny, thereby benefiting their own shareholders but potentially harming other corporate stakeholders.

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 (June 27, 2022). Journal of Finance, Forthcoming, 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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