Merger negotiations with stock market feedback

• Autores: Sandra Betton, B. Espen Eckbo, Rex Thompson, Karin S. Thorburn
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 69, Nº 4, 2014, págs. 1705-1745
• Idioma: inglés
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• Resumen

  • Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup�a costly feedback loop where bidders pay twice for anticipated target synergies�markups become strictly increasing in runups. Large-sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.