Target Revaluation after Failed Takeover Attempts - Cash versus Stock / Ulrike Malmendier, Marcus Matthias Opp, Farzad Saidi.

Format:

Book

Author/Creator:

Malmendier, Ulrike.

Contributor:

National Bureau of Economic Research.

Opp, Marcus Matthias.

Saidi, Farzad.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18211.

NBER working paper series no. w18211

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and show that targets of cash offers are revalued on average by +15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences. While the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years than matched control firms, there are no differences between cash and stock targets, neither in the timing nor in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley, Desai, and Kim, 1983) by identifying a "look-ahead" bias built into their sample construction.

Notes:

Print version record

July 2012.