The Dual Tracking Puzzle: When IPO Plans Turn into Mergers

44 Pages Posted: 8 May 2006

See all articles by Qin Lian

Qin Lian

Portland State University

Qiming Wang

Willamette University - Atkinson Graduate School of Management

Date Written: March 2007

Abstract

We examine a sample of 132 dual tracking targets - private firms entertaining acquisition offers at the same time as preparing for initial public offerings (IPOs) and eventually withdrawing their IPOs to be acquired after spending considerable time, money, and effort preparing for IPOs. We find that dual tracking private targets sell at a 58 percent acquisition premium relative to comparable private targets that never file IPO registrations, while their acquirers still earn a substantial average abnormal announcement return of 2.6 percent. Controlling for endogeneity effects does not change our results. The significant acquisition premium is due to neither dual tracking targets' improved bargaining power in negotiations nor higher potential synergy benefits for bidders. The premium is more consistent with the explanation that dual tracking private targets can signal their valuation to bidders and reduce valuation uncertainty by filing IPO registrations.

Keywords: Dual Tracking, IPO Withdrawal, Acquisition discount, CARs

JEL Classification: G14, G34, G39

Suggested Citation

Lian, Qin and Wang, Qiming, The Dual Tracking Puzzle: When IPO Plans Turn into Mergers (March 2007). EFA 2006 Zurich Meetings Paper, Available at SSRN: https://ssrn.com/abstract=899983 or http://dx.doi.org/10.2139/ssrn.899983

Qin Lian (Contact Author)

Portland State University ( email )

United States
5037253728 (Phone)

Qiming Wang

Willamette University - Atkinson Graduate School of Management ( email )

900 State Street
Salem, OR 97301
United States

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