Crossing takeover premiums and mix of payment: An empirical test of contractual setting in M&A transactions

The analyses of the tender offer premiums and of the means of payment should not be performed separately. In the empirical literature, these two variables are often considered independently, although they may have an endogenous relationship in a contractual setting. Using a sample of European M&As over the 2000–2010 decade, we show that these two variables are jointly set in a contractual empirical approach. The relationship between the percentage of cash and the offer premium is positive: higher premiums yield payments with more cash.     

A note on takeover success prediction

A takeover success prediction model attempts to use information that is publicly available at the time of the announcement in order to predict the probability that a takeover attempt will succeed. This paper develops a takeover success prediction model by comparing two techniques: the traditional logistic regression model and the artificial neural network technology. To alleviate the problem of bias from the sampling variation, we validate our results through re-sampling. Our empirical results indicate that 1). Arbitrage spread, target resistance, deal structure and transaction size are the dominating factors that have impacts on the outcome of a takeover attempt. 2). Neural network model outperforms logistic regression in predicting failed takeover attempts and performs as well as logistic regression in predicting successful takeover attempts.     

The role of defensive strategies and ownership structure of target firms: Evidence from UK hostile takeover bids

The outcome of a hostile takeover bid hinges on an interplay of the defensive strategies of targets and the offensive strategies of bidders. This study examines the determinants of outcome for a sample of 205 hostile bids for UK public company targets over the period 1983–1989. the impact of a number of defensive strategies adopted by the targets, their ownership structure which could aid or hinder the deployment of those strategies, and the method of payment selected by bidders is investigated using multivariate logit methodology. the City Code on Takeovers and Mergers in the UK and its influence on the choice of defensive and offensive strategies is described. the study finds outcome in hostile bids in the UK is significantly influenced by the use of certain defensive strategies, the presence of large institutional shareholders in targets, the size of targets and the method of payment chosen by the bidder. the results of this study are useful in devising effective strategies to frustrate or prosecute hostile bids.     

招标拉锯战

(一) 世行贷款城市环境项目城市污水处理设备更新改造国际竞争性招标,采用世行设备和生产线供货和安装一阶段招标的标准招标文件范本编制,合同估价为200万美元.     

Hostile bank takeover offers : Analysis and implications

A comparison of the financial characteristics of banks involved in hostile takeover bids with a control group of nonhostile bank mergers indicates: (1) hostile targets experience abnormal returns that are significantly greater than for the targets of nonhostile bank mergers; (2) hostile bidders experience negative abnormal returns that are insignificantly different than for bidders involved in nonhostile bank mergers; (3) hostile bank acquisition announcements produce positive net wealth effects which are larger than the wealth effects of nonhostile acquisitions; (4) a Logit regression model using financial ratios, stock price data, and ownership data is able to distinguish between hostile and nonhostile targets.     

Unconditional and conditional takeover offers: experimental evidence

This article compares the predictions of finite-shareholdermodels of conditional and unconditional takeover offers withthe outcomes of laboratory experiments. In addition to differentiatingbetween types of offers, the experimental designs span smalland large firms as well as different levels of offer premiums.It is found that in unconditional offers to large groups ofsubjects (28-40), the symmetric Nash equilibrium predicts observedtendering frequencies quite accurately. For other experimentaldesigns, the results are mixed. The analysis of shareholdertendering strategies from the experiment yields insights into(I) the effects of takeover offer designs, (ii) the appropriatenessof finite-shareholder models for research, and (iii) the costsof free riding when shareholders are nonatomistic.     

The impact of the EU takeover directive on takeover performance and empire building

This paper uses the EU takeover directive as a natural experiment to test when legal harmonization creates value, and to examine the impact of increased entrenchment on investment decisions. The EU promulgated the takeover directive in April 2004. The implementation deadline was May 2006. The goal was to encourage value-creating takeovers by harmonizing takeover laws across the EU. However, the takeover directive has received criticism for being vague and discretionary, and for entrenching managers. I hypothesize that because the directive hinders takeovers, it might increase managerial entrenchment and enable managers of EU-companies to make agency-motivated investments (or simply exercise less discipline). I find supportive evidence: after the directive, EU-companies make investments that are less profitable (as proxied by takeover returns) and that take longer to compete. Further, asset growth increased in treated companies following the takeover directive, suggesting that the additional entrenchment facilitates empire building.     

Own company stock in defined contribution pension plans: A takeover defense?

If managers induce employees to hold company stock in defined contribution pension plans as a form of takeover defense, then changes in state laws that enhance managerial protection should lead to a reduction in employer stock in 401(k) plans. Delaware's mid-1990s validation of the poison pill in conjunction with a staggered board was followed by a significant decline in employee ownership within defined contribution plans for firms incorporated in Delaware. Evidence using governance data suggests that this is due to responses of firms with staggered boards. Binary choice models confirm that employee ownership in defined contribution plans lowers takeover probabilities.     

A test of bear market mergerstat control premiums

This paper examines all 340 of the 2001 “bear market” acquisition announcements of U.S. target firms reported by Mergerstat/Shannon Pratt’s Control Premium Study^TM. This paper compares the “Control Premium” reported by Mergerstat/Shannon Pratt’s Control Premium Study^TM to a comparable “Cumulative Abnormal Return”(CAR) calculated using event study methodology. While the average total “Control Premium” reported by Mergerstat differed by only −3.45% from the event study CAR, significant differences presented themselves when the event period was broken down between the day −63 to −1 “runup” period and the day 0 to end “markup” period.      

Technological innovations and aggregate risk premiums

In this paper, I propose that technological innovations increase expected stock returns and premiums at the aggregate level. I use aggregate patent data and research and development (R&D) data to measure technological innovations in the U.S., and find that patent shocks and R&D shocks have positive and distinct predictive power for U.S. market returns and premiums. Similar patterns are also found in international data including other G7 countries, China, and India. These findings are consistent with previous empirical studies based on firm-level data, and call for further theoretical explanations.     

Optimal and efficient takeover contests with toeholds

Target firms often face a takeover threat from raiders with prior stakes in its ownership (toeholds). Previous literature has shown that, when takeovers are modeled as standard auctions, toeholds induce more aggressive bids from raiders, which has two important consequences for the selling process: (i) the board of directors is no longer indifferent about the sale procedure used to get the highest price, and (ii) the target may not be assigned to the highest-value raider. This paper characterizes how the price-maximizing procedure should be in the presence of asymmetric toeholds. Our central result is that the optimal rule needs to be implemented by a discriminatory mechanism quite different from conventional auction formats. By imposing an extra-charge against high-toehold bidders, the optimal mechanism is able to extract more surplus from raiders who bid more aggressively. As a result, nonbidding shareholders benefit unambiguously from the toehold asymmetry. Furthermore, as this bias restores the symmetry in bidders’ expected payoffs, the proposed mechanism also allows to allocate efficiently the target among them.     

Noise trading and prime and score premiums

This paper documents that a common element drives the time-series variation of the premium pricing of Primes and Scores. I argue that this common element is noise trading. The noise trading model of Delong, Shleifer, Summers and Waldmann (1990) predicts that returns on assets that are predominantly traded by noise traders will be correlated, since the misperceptions of noise traders are cross-sectionally correlated. Consistent with the noise trading hypothesis, changes in the average premium of Primes and Scores, which are predominantly traded by individual investors, are correlated with both changes in average discounts of closed-end funds and small firms returns. These empirical facts provide additional evidence that noise traders can affect security prices.     

Differences in beliefs and currency risk premiums

This paper studies the importance of heterogeneous beliefs for the dynamics of asset prices. We focus on currency markets, where the absence of short-selling constraints allows us to perform sharper tests of theoretical predictions. Using a unique data set with detailed information on foreign-exchange forecasts, we construct an empirical proxy for differences in beliefs. We show that this proxy has a strong effect on the implied volatility of currency options beyond the volatility of macroeconomic fundamentals. We document that differences in beliefs impact also on the shape of the implied volatility smile, on the volatility risk-premiums, and on future currency returns.     

New Zealand finance companies and risk premiums

This article uses the recent implosion of the finance company sector in New Zealand to examine a number of questions. In the period between the upsurge in the default rate in 2006 and the implementation of a Government Guarantee Scheme in October 2008, we find that the debt risk premiums within the deposit rates of these institutions were grossly inadequate to compensate for default risk, that depositors continued to make significant new deposits even into firms that failed shortly afterwards and that the failure of the companies to increase the risk premiums was likely out of concern that this would aggravate perceptions of default risk.     

Bidding into the Red: A Model of Post-Auction Bankruptcy

This paper investigates auctions where bidders have limited liability. First, we analyze bidding behavior under different auction formats, showing that the second‐price auction induces higher prices, higher bankruptcy rates, and lower utilities than the first‐price auction. Second, we show that the cost of bankruptcy critically affects the seller's preference over the choice of auction. If bankruptcy is very costly, the seller prefers the first‐price auction over the second‐price auction. Alternatively, if the bankrupt assets are resold among the losers of the initial auction, the seller prefers the second‐price auction.     

Strategy and management control systems: A study of the design and use of management control systems following takeover

This paper describes and analyses the approach taken by four well-known Swedish companies to management control following takeover. The findings suggest two factors which can explain how the management control systems were designed and used after an acquisition: the corporate strategy of the acquirer and the business strategy of the acquired company. The case studies show how these forces could impose mutually inconsistent requirements on the management control system of the acquired firm, and also how these inconsistencies were resolved.     

Audit fee determinants and auditor premiums: evidence from the micro-firm sub-market

Despite the growing literature on the market for audit services, to date no study has examined the determinants of audit fees for the smallest auditees in the market. This study therefore provides some new theory and evidence on the determinants of the audit fees of micro-firms operating in the UK manufacturing sector. A key finding of the study is that in the highly competitive market under consideration, independent small auditees willingly paid a premium to be audited by a mid-tier or a (then) Big Six auditor, with the latter commanding the higher premium. It is concluded that these findings are consistent with Big Six (and, to a lesser extent, mid-tier) auditors commanding a brand premium stemming from the (perceived) higher quality audit conducted by large auditors, for which small firms are willing to pay a premium in order to benefit from associated ‘reputational’ and ‘signalling’ effects. The common finding that the explanatory power of audit fee models declines as a function of firm size is also examined. The empirical analysis confirms this effect, but evidence is offered that, rather than resulting from model misspecification, it is likely that audit prices of the smallest auditees are relatively insensitive to variations in corporate size, which may result from lower incremental economies of scale and minimum pricing.     

Analytical GMM tests: asset pricing with time-varying risk premiums

We propose alternative generalized method of moments (GMM) teststhat are analytically solvable in many econometric models, yieldingin particular analytical GMM tests for asset pricing modelswith time-varying risk premiums. We also provide simulationevidence showing that the proposed tests have good finite sampleproperties and that their asymptotic distribution is reliablefor the sample size commonly used. We apply our tests to studythe number of latent factors in the predictable variations ofthe returns on portfolios grouped by industries. Using datafrom October 1941 to September 1986 and two sets of instrumentalvariables, we find that the tests reject a one factor modelbut not a two-factor one.