Why Do Private Acquirers Pay so Little Compared to Public Acquirers?

48 Pages Posted: 15 Apr 2007  

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Frederik P. Schlingemann

University of Pittsburgh - Finance Group; Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Chad J. Zutter

University of Pittsburgh - Finance Group

Multiple version iconThere are 2 versions of this paper

Date Written: May 2007

Abstract

We find that the announcement gain to target shareholders from acquisitions is significantly lower if private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains and that managers of firms with diffuse ownership may pay too much for acquisitions.

Keywords: Private equity acquisitions, target abnormal returns

JEL Classification: G3

Suggested Citation

Bargeron, Leonce and Schlingemann, Frederik P. and Stulz, René M. and Zutter, Chad J., Why Do Private Acquirers Pay so Little Compared to Public Acquirers? (May 2007). Fisher College of Business Working Paper No. 2007-03-011; ECGI - Finance Working Paper No. 171/2007; Charles A. Dice Center Working Paper No. 2007-8. Available at SSRN: https://ssrn.com/abstract=980066 or http://dx.doi.org/10.2139/ssrn.980066

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

Lexington, KY 40506
United States
859-257-4397 (Phone)

Frederik Paul Schlingemann

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
(412) 648 1847 (Phone)
(412) 648 1693 (Fax)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Chad J. Zutter

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

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