Do Tender Offers Create Value? New Methods and Evidence

Dice Center Working Paper No. 2004-4

64 Pages Posted: 18 May 2004

See all articles by Sanjai Bhagat

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

Ming Dong

York University - Schulich School of Business

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Robert B. Noah

Cambridge Finance Partners, LLC

Date Written: March 16, 2004

Abstract

We develop the Probability Scaling Method, which rescales short-window announcement period returns; and the Intervention Method, which uses returns associated with intervening events, to estimate value improvements from tender offers. These methods address biases in conventional techniques, which measure only a fraction of the total tender offer gain; and which include revelation about bidder stand-alone value. Perceived value improvements are much larger than traditional methods indicate, so that we cannot reject the hypothesis that bidders on average pay fair prices for targets. Furthermore, our new methods affect inferences about economic forces in the takeover market. We identify several effects (higher combined bidder-target stock returns for hostile offers, lower for equity offers, and lower for diversifying offers) that reflect differences in revelation about stand-alone value, not gains from combination.

Keywords: Tender offers, value improvements, truncation dilemma, revelation bias, agency

JEL Classification: G12, G34

Suggested Citation

Bhagat, Sanjai and Dong, Ming and Hirshleifer, David A. and Noah, Robert B., Do Tender Offers Create Value? New Methods and Evidence (March 16, 2004). Dice Center Working Paper No. 2004-4. Available at SSRN: https://ssrn.com/abstract=545642 or http://dx.doi.org/10.2139/ssrn.545642

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert B. Noah

Cambridge Finance Partners, LLC ( email )

Cambridge, MA 02139
United States

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