The price of corporate acquisition: determinants of cash takeover premia

Gondhalekar, Vijay; Sant, Rajiv; Ferris, Stephen P.

doi:10.1080/1350485042000254601

Cited by 20 publications

(21 citation statements)

References 8 publications

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“…Thus, buyers pay more for a target with a high market-to-book ratio because it offers new investment opportunities. Gondhalekar, Sant and Ferris (2004) test this hypothesis but do not obtain significant results. Betton, Eckbo and Thorburn (2008) assert that if the market-to-book ratio of the target is higher than the median ratio of the industry, the target is a growth company relative to its competitors and should therefore command a higher premium.…”

Section: Market-to-book Ratio Of the Targetmentioning

confidence: 98%

“…Gondhalekar, Sant and Ferris (2004) propose that the buyer's leverage can influence the premium paid.…”

Section: Financial Synergiesmentioning

confidence: 99%

“…Gondhalekar, Sant and Ferris (2004) analyze the premiums paid by buyers during a period that covers three decades, mainly 1973 to 1999. The authors define the premium as the difference in percentage between the final price and the share price of the target 40 days before the announcement of the offer.…”

Section: Premiummentioning

confidence: 99%

“…Schwert (2000) and Comment and Schwert (1995), among others, use a direct measure of the target size and conclude that this variable has a significant negative effect on the premium because larger targets are associated with higher integration costs. Gondhalekar, Sant and Ferris (2004) and Moeller (2005) study a relative size variable and report an adverse effect of target size on the premium.…”

Section: Company Sizementioning

confidence: 99%

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Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?

Dionne

Haye²,

Bergerès³

2010

SSRN Journal

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Abstract:Our objective is to test the influence of information asymmetry between potential buyers on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions with asymmetric information. The theory of dynamic auctions with private values predicts that more informed bidders should pay a lower price for an acquisition. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We hypothesize that blockholders of the target's shares are better informed than other bidders because they possess privileged information on the target. Information asymmetry between participants is shown to influence the premium paid. Blockholders pay a much lower conditional premium than do other buyers (around 70% lower). Tests also show that the characteristics of the target, specifically the runup, sales growth and size, affect the premium. The size of the target relative to the buyer, the choice of a public takeover bid and the hostility of the bid are also influential.

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Section: Market-to-book Ratio Of the Targetmentioning

confidence: 98%

“…Gondhalekar, Sant and Ferris (2004) propose that the buyer's leverage can influence the premium paid.…”

Section: Financial Synergiesmentioning

confidence: 99%

Section: Premiummentioning

confidence: 99%

Section: Company Sizementioning

confidence: 99%

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Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?

Dionne

Haye²,

Bergerès³

2010

SSRN Journal

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“…Diversifying Acquisitions generally has a negative and significant impact on the acquisition gains accruing to the target company (Gondhalekar, Sant and Ferris, 2004) rather than to the bidder (e.g. Morck, Shleifer, and Vishny, 1990;Amihud and Lev, 1981;Villalonga, 2004aVillalonga, , 2004b.…”

Section: Multivariate Analysismentioning

confidence: 99%

Corporate acquisitions and financial constraints

Khatami

Marchica

Mura

2015

International Review of Financial Analysis

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Using a large sample of US acquisitions made between 1985 and 2013, we study the effect of financial constraints on acquisition gains and acquisition likelihood. Our findings show that financial constraints of target companies significantly increase acquisition premiums and abnormal returns for both parties. Our results further show that the presence of financial constraints in the target is one of the most important determinants of a takeover bid. This supports the idea that acquisitions may improve the ability of financially constrained companies to access capital through a better reallocation of resources within segments of the same company (e.g., internal capital market) or through better access to external markets. This would eventually benefit bidders too, as new capital would be invested in valuable growth opportunities that otherwise would expire unexercised.JEL Classification: G32, G34

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What’s really in a deal? Evidence from textual analysis of M&A conference calls

Shohfi

Wang

2021

Rev Financ Econ

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Using a sample of 814 transcripts from 2011 to 2018, we examine information within merger and acquisition conference calls. Textual analysis reveals significant differences between the content of M&A call transcripts and both contemporaneous corporate press releases and prior earnings conference calls. We find participation of target executive types in M&A calls occurs more frequently in diversifying acquisitions and is related to payment choice consistent with promoting managerial sectorspecific skills and incentive alignment, respectively. Retention of participating target executives is associated with a negative market reaction. We also identify a negative relation between textual sentiment and market reaction consistent with a response to higher levels of information asymmetry. Greater quantitative information, however, is positively related to the market reaction of M&A calls. We develop targeted M&A motive dictionaries to identify financial and strategic content within call transcripts.Consistent with prior literature on merger motivation, deals with more finance (strategy)-oriented words have a higher (lower) market reaction. Overall, our resultsshow that deal-related textual analysis explains a highly significant and economically important component of gains/losses to acquirers.

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The price of corporate acquisition: determinants of cash takeover premia

Cited by 20 publications

References 8 publications

Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?

Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?

Corporate acquisitions and financial constraints

What’s really in a deal? Evidence from textual analysis of M&A conference calls

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