What Drives Acquisition Premiums and Why do Targets Reject Offers? Evidence from Failed Acquisition Offers

Abstract

Using a hand-collected sample of 1,246 failed acquisition offers from 1979 to 2016, we investigate whether acquisition premiums are driven by the market’s revaluation of the target (the information hypothesis) or potential synergies (the synergy hypothesis). Partitioning the sample into acquisition offers that fail due to the target’s rejection (rejection group) and those that fail due to other reasons (non-rejection group), we find that the information hypothesis applies to both groups, reversing the interpretation of prior studies. Overall, our paper shows that identifying the failure reason is of prominent importance for research in mergers and acquisitions.

Keywords: Mergers and acquisitions, Failed acquisitions, Corporate governance

JEL Classification: G34