Anticipation, Acquisitions, and Bidder Returns: Industry Shocks and the Transfer of Information across Rivals

Cai, Jie; Song, Moon H.; Walkling, Ralph A.

doi:10.1093/rfs/hhr035

Cited by 165 publications

(86 citation statements)

References 60 publications

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“…26 See Betton, Eckbo, and Thorburn (2008) for a discussion, and Song and Walkling (2000), Fuller, Netter, andStegemoller (2002), andCai, Song, andWalkling (2011) for approaches to address this problem.…”

Section: B Our Model Of Takeover Auctions Versus Linear Regression Omentioning

confidence: 99%

Strategic and Financial Bidders in Takeover Auctions

Gorbenko

Malenko

2010

SSRN Journal

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Using data on auctions of companies, we estimate valuations (maximum willingness to pay) of strategic and financial bidders from their bids. We find that a typical target is valued higher by strategic bidders. However, 22.4% of targets in our sample are valued higher by financial bidders. These are mature poorly-performing companies. We also find that (i) valuations of different strategic bidders are more dispersed, (ii) valuations of financial bidders are correlated with aggregate economic conditions. Our results suggest that different targets appeal to different types of bidders, rather than that strategic bidders always value targets more because of synergies.Keywords: mergers and acquisitions, strategic bidders, financial bidders, takeover auctions JEL Classification Numbers: D44, G32, G34 * Gorbenko is with London Business School. Malenko is with MIT Sloan School of Management. We are grateful to two anonymous referees, the anonymous Associate Editor, Jules van Binsbergen, Jonathan Cohn, Peter DeMarzo, Darrell Duffie, Campbell Harvey (the Editor), Han Hong, Dirk Jenter, Ron Kaniel, Arthur Korteweg, Ilan Kremer, John Lazarev, Nadya Malenko, Ian Martin, Gregor Matvos (WashU discussant), Michael Ostrovsky, Francisco Perez-Gonzalez, Matthew Rhodes-Kropf (WFA discussant), Ilya Strebulaev, Jessica Yang, Jeffrey Zwiebel, seminar participants at Boston University, Higher School of Economics, London Business School, London School of Economics, Norwegian School of Economics, University of Connecticut, University of Rochester, University of Utah, and participants at the 2010 Western Finance Association Meeting in Victoria and the 8th Annual Corporate Finance Conference at Washington University in St. Louis for helpful comments. 1Electronic copy available at: http://ssrn.com/abstract=1559481The market for corporate control is one of the largest corporate markets. In 2007 alone, the value of M&A transactions worldwide was a staggering $4.8 trillion. While some takeovers proceed as negotiations of a target with a single acquirer, many takeovers face competition among several bidders.1 The set of bidders is comprised of two groups: strategic and financial.Strategic bidders are usually companies in a related type of business, such as competitors, suppliers, or customers. They tend to look for targets that offer long-term operational synergies and integrate them into their own business. In contrast, financial bidders, typically private equity firms, look for undervalued targets with a potential to generate high cash flow, often after a reorganization. After the acquisition, a financial bidder treats the target as a part of its financial portfolio and sells it once exit opportunities become sufficiently appealing.Despite their recognized importance, 2 the differences between strategic and financial bidders remain largely unexplored. A common view is that strategic bidders are systematically willing to pay more than financial bidders. For example, as Mark E. Thompson and Michael J. O'Brien, practitioners in the privat...

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Section: B Our Model Of Takeover Auctions Versus Linear Regression Omentioning

confidence: 99%

Strategic and Financial Bidders in Takeover Auctions

Gorbenko

Malenko

2010

SSRN Journal

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“…To formally examine the effect of over-investment history on the stock returns around future M&A announcement dates (H4), I follow the specification in Masulis et al (2007) Cai et al (2011) also report that less anticipated bids earn significantly higher announcement returns. They examine how industry merger waves affect acquiring firms' announcement returns.…”

Section: Effect On the Announcement Window Return Of Future Acquisitionsmentioning

confidence: 99%

“…In addition, the mechanism of how anticipation works differs for acquiring firms versus target firms. Also unlike Cai et al (2011) who define anticipated acquirers as later bidders in an industry merger wave, my research motivates the anticipation effect for acquiring firms from agency theory and examines how future firm values are related to inferences from past acquisitions based on the anticipated likelihood of future acquisitions. In other words, I do not study the performance consequences of acquisitions per se; rather, I study the valuation consequences of investors ' (revised) expectations about future investments chosen by acquiring firms themselves.…”

Section: Introductionmentioning

confidence: 99%

The effects of anticipated future investments on firm value: evidence from mergers and acquisitions

Zhang

2016

Rev Account Stud

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“…Cai et al. () find that abnormal returns of firms bidding on public targets are on average negative and more negative for anticipated bids. This implies that, to the extent that the market may be able to anticipate a deal termination prior to the actual announcement, the market's reaction on the day of deal termination may not fully capture the early price adjustment.…”

Section: Data and Sample Selectionmentioning

confidence: 99%

Bidder's Gain: Evidence from Termination Returns

Tang

2015

Int Rev Finance

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In most cases, bidder's stock returns around merger announcement convey more information than the synergy created from the acquisition. To overcome the interpretation problem, I study the bidder's return from the perspective of deal termination. Using a hand-collected dataset on terminated merger proposals, I investigate termination returns in deals canceled for reasons unrelated to the bidder's stand-alone valuation. I find that bidder's gain varies significantly with the type of target acquired. Further evidence suggests that the liquidity need of private target significantly contributes to the positive gain to the bidder.

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Anticipation, Acquisitions, and Bidder Returns: Industry Shocks and the Transfer of Information across Rivals

Cited by 165 publications

References 60 publications

Strategic and Financial Bidders in Takeover Auctions

Strategic and Financial Bidders in Takeover Auctions

The effects of anticipated future investments on firm value: evidence from mergers and acquisitions

Bidder's Gain: Evidence from Termination Returns

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