A Note on Unsuccessful Tender Offers and Stockholder Returns

Fabozzi, Frank J.; Ferri, Michael G.; Fabozzi, T. Dessa; Tucker, Julia

doi:10.2307/2328220

Cited by 8 publications

(5 citation statements)

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“…The conclusion of this seminal paper has remained the presumed status quo in the literature [see Davidson, Dutia, and Cheng (1989) and Fabozzi, Ferri, Fabozzi, and Tucker (1988) for follow-up studies on merger bids and tender offers, respectively]. Our findings suggest that the evidence in these studies needs to be reinterpreted.…”

Section: Introductionmentioning

confidence: 70%

Target revaluation after failed takeover attempts: Cash versus stock

Malmendier

Opp

Saidi

2016

Journal of Financial Economics

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Cash-and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and we 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 eight years than matched control firms, no differences exist 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. $ This paper benefited significantly from the comments of Harry DeAngelo, our referee, and discussions by Nihat Aktas, Audra Boone, Matthew Rhodes-Kropf, and Pavel Savor, as well as the detailed input from Javed Ahmed, Dirk Jenter, and Marlena Lee. We also acknowledge helpful comments by

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Section: Introductionmentioning

confidence: 70%

Target revaluation after failed takeover attempts: Cash versus stock

Malmendier

Opp

Saidi

2016

Journal of Financial Economics

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“…They conclude that takeover gains are only sustained when a successful takeover of the target firm subsequently occurs. Jarrell and Bradley (1980), Asquith (1983), and Fabozzi et al (1988) also conclude that takeover gains dissipate in failed transactions. On the other hand, Bradley (1980), and Denis (1990) argue that targets of abandoned takeover bids experience a permanent revaluation of their shares.…”

Section: Introductionmentioning

confidence: 93%

An analysis of failed takeover attempts and merger cancellations

Neuhauser

Davidson

Glascock

2011

International Journal of Managerial Finance

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PurposeThis study seeks to analyze the differences between merger cancellations and three types of takeover failures: failures that are associated with targeted share repurchases (greenmail), failures in which the sole bidder simply withdraws the offer, and failures that are accompanied by a general share repurchase (buyback).Design/methodology/approachThe paper uses event study methods and regression analysis.FindingsThe paper observes negative target stock price reactions around all types of takeover failures and merger cancellations. However, the cumulative effect of takeover attempts is positive, suggesting that even unsuccessful tender offers generate permanent gains to target firm shareholders, while the cumulative effect of canceled mergers is negative. Furthermore, the market reaction to greenmail‐induced takeover failure announcements is no worse than that of voluntary withdrawals, suggesting that greenmail may play an efficient role in mitigating the effects of takeover bid withdrawals. Finally, while bidder wealth is destroyed in takeover failures, the effect of merger cancellations on bidders is considerably more devastating.Originality/valueThe paper provides evidence of negative stock price reactions to all forms of merger failure. The paper also shows that the cumulative effect of all types of takeover failures is still positive: suggesting that being put into play is still beneficial overall but that canceled mergers destroy value for both targets and bidders. The paper shows that the market reaction to greenmail‐induced failure announcements is no worse than other forms of failure. Finally, while there is an immediate downturn in target prices around a failure, the negative outcome is more severe for the bidders. Thus, the market sees that there was something useful about the anticipated change in corporate control, which was lost when it failed to be completed.

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“…It appears to work well when applied to targets of takeover bids that are ultimately successful, but it tends to overestimate the likelihood of success for targets of failed bids (see Zissu, 1989;Hutson, 2000). This is probably because the likelihood of a subsequent bid is an important additional determinant of the price of stocks subject to takeover bids that fail (see Bradley, 1980;Bradley et al, 1983;Fabozzi et al, 1988). 5.…”

Section: Notesmentioning

confidence: 99%