Takeover targets and the probability of bid success

Hutson, Elaine

doi:10.1016/s1057-5219(99)00021-6

Cited by 23 publications

(7 citation statements)

References 39 publications

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“…Of these bids, the last price recorded is on average 5.3% below the final bid price, with a standard deviation of 4.3%. Hutson (2000) suggests that the non-convergence is due to a lack of liquidity in the market for the target as investors perceive the bid's success as increasingly likely. The lack of liquidity, especially a few days prior to the announcement of final bid success means that the recorded market price is often a stale price, and hence the observed non-convergence in the final bid and market price.…”

Section: Return Measurementmentioning

confidence: 99%

The Profitability of Merger Arbitrage: Some Australian Evidence

Maheswaran

Yeoh

2005

Australian Journal of Management

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In this paper we examine the risk-adjusted profitability of merger arbitrage in Australia. Using a sample of 193 merger and acquisition bids from January 1991 to April 2000, we construct a time series of returns on equal and value-weighted merger arbitrage portfolios. Benchmarking the returns on the merger arbitrage portfolios against the CAPM and Fama and French (1993) three-factor models, we find that merger arbitrage generates statistically and economically significant excess risk-adjusted returns before transaction costs, ranging from 0.84% to 1.20% per month. However, after adjusting for transaction costs, the risk-adjusted returns are no longer statistically significant. Further, in contrast to the United States, our evidence indicates that merger arbitrage in Australia is a market-neutral investment strategy. Indeed, the results from our estimations of the linear CAPM and Fama and French (1993) three-factor models suggest that merger arbitrage returns are not significantly sensitive to market-wide factors.

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Section: Return Measurementmentioning

confidence: 99%

The Profitability of Merger Arbitrage: Some Australian Evidence

Maheswaran

Yeoh

2005

Australian Journal of Management

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“…The share price of a target that receives a successful subsequent bid experiences an additional significant positive revaluation. Interestingly, Hutson (2000) documents that the market is able to anticipate the arrival of a subsequent bid prior to expiry of the initial bid. The finding that the exceptionally high gains experienced by target company shareholders are dissipated if the bid does not succeed puts the onus on the target's directors to manage the bid process effectively since substantial value is at risk.…”

Section: Distribution Of Gains and Losses Among Acquiring And Target mentioning

confidence: 99%

Australian Mergers and Acquisitions Since the 1980s: What Do We Know and What Remains to Be Done?

Rosa¹,

Walter

2004

Australian Journal of Management

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Dodd (1976), the earliest share-market-based study of Australian M&A activity found results consistent with Walter (1984) and Bishop, Dodd and Officer (1987). 2. There has been extensive research on M&A activity in the US, UK and, to a lesser degree, Europe. Practical considerations restrict the present review to Australian research. The restricted coverage is less costly than it might seem since the Australian studies and findings are typical of those reported for the other major capital markets.

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“…The empirical evidence is supported by the theoretical analysis of Giammarino and Heinkel (1986). In their model, the bid itself provides a signal of efficiency gains, to which the market responds, such that ‘the market value of the target at each point in the contest will correspond to the conditional expected value (p.475).’ In the first evidence on profitability of merger arbitrage in Australia, Hutson (2000) presents evidence contrary to the prevailing view that postannouncement bids are indicative of the probability of takeover success. She argues that prior evidence is unduly influenced by the boundaries of zero and one imposed on this estimate.…”

Section: Literature Reviewmentioning

confidence: 79%

“…, 1992); 70 per cent (Bishop et al. , 1987); 77 per cent (Schwert, 1996); 82 per cent (Sudarsanam and Nguyen, 2008); 82 per cent (Hutson, 2000); 89 per cent (Branch and Yang, 2003); 89 per cent (Branch and Yang, 2006a); 91 per cent (Karolyi and Shannon, 1999); 91 per cent (Hsieh and Walkling, 2005); and 97 per cent (Jindra and Walkling, 2004), which falls to 75 per cent if each instance of a multiple bid is assumed to comprise two bids.…”

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confidence: 99%

Market risk exposure of merger arbitrage in Australia

Hall

Pinnuck

Thorne

2011

Accounting & Finance

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We investigate the risk-return characteristics of merger arbitrage in the Australian market for corporate control, whereby hedge fund managers acquire companies subject to a takeover offer. On average, a strategy of buying target companies and short-selling bidders making scrip offers would have generated an annual return of 30 per cent from 1985 to 2008, excluding transaction costs, compared to the return on the broader market of 12 per cent. However, performance is not market neutral, being positively associated with market returns during downturns and inversely related to market movements during rising markets. The payoffs to this strategy are analogous to a short straddle, whereby the investor is short a call and put option at the same exercise price. These results are consistent with large-sample evidence from the United States and the United Kingdom and have not previously been documented in Australia, in which prior evidence is based only on cash deals during the 1990s.

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Takeover targets and the probability of bid success

Cited by 23 publications

References 39 publications

The Profitability of Merger Arbitrage: Some Australian Evidence

The Profitability of Merger Arbitrage: Some Australian Evidence

Australian Mergers and Acquisitions Since the 1980s: What Do We Know and What Remains to Be Done?

Market risk exposure of merger arbitrage in Australia

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