Takeovers, Freezeouts, and Risk Arbitrage

Gomes, Armando

doi:10.2139/ssrn.277109

Cited by 28 publications

(20 citation statements)

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“…Bidders with a toehold bid more aggressively than those without. Gomes (2000) examines freezeouts, where the bidder can by force acquire residual shares not tendered. In this case, by accumulating shares prior to announcement, arbitrageurs can force the bidder into paying a high takeover premium.…”

Section: Limited Arbitrage In the Context Of Mergers And Acquisitionsmentioning

confidence: 99%

Limited Arbitrage in Mergers and Acquisitions

Baker

Savaşoglu

2000

SSRN Journal

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Section: Limited Arbitrage In the Context Of Mergers And Acquisitionsmentioning

confidence: 99%

Limited Arbitrage in Mergers and Acquisitions

Baker

Savaşoglu

2000

SSRN Journal

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“…We assume that following a favorable vote, there is a freeze-out of non-tendered shares, and the target is absorbed by the acquirer. This assumption mirrors general practice-freeze-outs occur in over 90% of US and UK takeovers (Gomes, 2001) in order to eliminate free riding. Discussion.…”

Section: Introductionmentioning

confidence: 77%

“…For all practical purposes, this precludes the possibility that an acquirer's share price may fall after equity acquisitions that require acquirer shareholder approval, in contrast to equity acquisitions that do not (to which Proposition 5 (i) applies). 16 Becht, Polo, and Rossi (2014) provide strong empirical support for this contrast. In the UK, shareholder voting is mandatory for deals that exceed a relatively low valuation threshold, but is discretionary below that threshold.…”

Section: Further Discussionmentioning

confidence: 97%

Targeting Target Shareholders

2014

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We integrate heterogeneity and uncertainty in investor valuations into a model of takeovers. Investors have dispersed valuations, holding shares in …rms they value more highly, and a successful o¤er must win approval from the median target shareholder. We derive the consequences for an acquiring …rm's takeover o¤er-its size and cash/equity structure-and implications for takeover premia, …rm returns, share price dynamics, the probability that a takeover succeeds and shareholder welfare. We characterize when the acquirer prefers cash o¤ers, and when equity o¤ers are best. Our model collectively reconciles various empirical regularities that have proven elusive to explain in one uni…ed framework, and we derive new testable predictions.We thank Jie Gan, Jarrad Harford, Micah O¢ cer, and seminar participants at Arizona State University, Targeting target shareholders AbstractWe integrate heterogeneity and uncertainty in investor valuations into a model of takeovers. Investors have dispersed valuations, holding shares in …rms they value more highly, and a successful o¤er must win approval from the median target shareholder. We derive the consequences for an acquiring …rm's takeover o¤er-its size and cash/equity structure-and implications for takeover premia, …rm returns, share price dynamics, the probability that a takeover succeeds and shareholder welfare. We characterize when the acquirer prefers cash o¤ers, and when equity o¤ers are best. Our model collectively reconciles various empirical regularities that have proven elusive to explain in one uni…ed framework, and we derive new testable predictions.

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“…27 Since on average the takeover does not create value, the bidder never acquires the target without first performing due diligence. According to Corollary 1, if the bidder performs due diligence then his expected net profit conditional on ζ and α is ζ · (w(α) − v(α)) − c. As a result, the bidder performs due diligence if and only if ζ = 1 and c < w(α) − v(α).…”

Section: Discussionmentioning

confidence: 99%

Corporate Control Activism

Corum

Levit

2015

SSRN Journal

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We identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential remedies and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play. This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Building on this insight, we study the implications of activist interventions on the M&A market. AbstractWe identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential remedies and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play.This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Building on this insight, we study the implications of activist interventions on the M&A market.

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Takeovers, Freezeouts, and Risk Arbitrage

Cited by 28 publications

References 50 publications

Limited Arbitrage in Mergers and Acquisitions

Limited Arbitrage in Mergers and Acquisitions

Targeting Target Shareholders

Corporate Control Activism

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