An options-based approach to forecast competing bids: evidence for Canadian takeover battles

During takeover battles, a tender offer provides a call option right to the target’s shareholders: it guarantees the offered price but maintains the chance of a higher offer. We present an options-based approach to estimate the probability and expected value of higher competing takeover bids using target stock price data. Analysing Canadian takeover battles in the period 1997 to 2007 we find that during the 5 trading days prior to the occurrence of an increased takeover bid, the estimated probability of a higher bid exceeds 80% on average and the expected value of a potential competing bid almost matches the realized value.     

Similar bidders in takeover contests

When bidders in a corporate takeover have related resources and post-acquisition strategies, their valuations of a target are likely to be interdependent. This paper analyzes sequential-entry takeover contests in which similar bidders have correlated private valuations. The level of similarity affects information content of bids and bidding competition. Our model predicts that expected acquisition prices and the probability of multiple-bidder contests are the highest for intermediately similar bidders. We test these predictions in laboratory experiments in which we control the similarity between bidders. The experimental data confirm the non-monotonic effects of similarity on prices and on the frequency of multiple-bidder contents.     

Reverse takeover: the moderating role of family ownership

The aim of this study was to analyse the determinants of reverse takeovers, examining the influence of target firm shareholders’ type in the agreement. We examine reverse takeovers implemented in the Alternative Investment Market between 1999 and 2012, paying special attention to the differences between family and non-family target firms, as well as the impact of the financial crisis.

We propose that family firms have a lower probability of accepting a reverse takeover (‘shell’ firm), to avoid both diluting the ownership structure (loss of control) and new shareholders entering their firm. Our main findings show that the higher the percentage of ownership held by family holders, the lower the probability of their being the target firm in a reverse takeover. This effect is maintained during the crisis period, in accordance with the expectation that family firms will have fewer financial constraints.     

Portfolio effects in conglomerate mergers: the empirical evidence of leverage effects in Korean liquor market

In the article, we implement an empirical test on the portfolio effects of conglomerate mergers, using the data of Korean liquor market during the period 1990–2008 in which there have been several important conglomerate mergers between beer and soju companies. We find that the combined company could take the advantage of regional market dominance in the beer market in expanding regional market shares in the soju market. Such leverage effects are differentiated from the efficiency-enhancing portfolio effects that result in the combined company’s expanding shares over all regional soju markets regardless of the presence of dominance in the beer market. The common distribution channels of liquor wholesalers seem to play a pivotal role in the combined firm’s expansion of dominance in one market into another. Furthermore, we implement separate empirical tests for two subsamples of regionally dominant and nondominant soju companies in order to differentiate the leverage effects of foreclosure from those of toehold. The empirical results show the evidence of leverage effects only for a sample of nondominant soju companies. This implies that the leverage effects of conglomerate mergers between beer and soju companies in Korea had pro-competitive effects in that the combined firm could compete more effectively with regionally dominant companies with the leverage of dominance in the beer market as toehold.     

Some Theoretical and Practical Implications of the Attempted Takeover of a Consumer Cooperative Society

The article begins with some observations about the trend towards demutualization of mutual and co-operative businesses, and then presents a case study of one, rather dramatic, example: the attempted takeover of Europe's largest consumer co-operative, CWS. It draws on original research into the takeover bid to provide a summary of what happened and when, and then asks some important questions about whether consumer co-operatives are inherently less efficient than PLCs in the retail sector; whether they can make themselves safe from takeover; if they do survive, how they can justify their existence as member-owned businesses; and whether there are alternative forms such as worker or multi-stakeholder ownership that can achieve the broad aims of the co-operative sector more effectively. It concludes that if CWS and similar organizations are to survive they must integrate the two aspects of a co-operative—the business and the association—and take seriously the opportunities and responsibilities that being a member-owned organization implies.     

Merger Speculation in Financial Media: The Valuation of Investigative Reporting

The authors study abnormal returns and volume in the days surrounding takeover speculation by financial media. Significantly positive price and volume responses 2 days after publication are observed. While most of this effect dissipates shortly thereafter, some excess returns remain impounded into the stock price. A study of the ex post takeover probabilities suggests that a positive response is justified, as takeover probabilities for such firms subsequently increase. This evidence is consistent with the idea that financial media speculation can facilitate the release of useful private information to shareholders. However, significantly positive excess returns and volume in the few days before publication also suggests that certain shareholders may benefit disproportionately.     

A model of takeovers of foreign banks

This paper investigates the determinants of the takeover of a foreign bank by a domestic bank whereby the former becomes a branch of the latter. Each bank is initially supervised by a national agency that cares about closure costs and deposit insurance payouts, and may decide the early closure of the bank on the basis of supervisory information. Under the principle of home country control, the takeover moves responsibility for both the supervision of the foreign bank and the insurance of the foreign deposits to the domestic agency. It is shown that the takeover is more likely to happen if the foreign bank is small (relative to the foreign banking market) and its investments are risky (relative to those of the domestic bank). Moreover, the takeover is in general welfare improving for both countries.     

Takeovers, Joint Ventures and the Acquisition of Resources for Diversification

This paper explores the influence of acquisition costs on the choice between the takeover and joint venture modes of obtaining the resources required for diversifying expansion. It uses the conditions created by privatisation in the UK utility sector as a natural experiment to examine the determinants of mode choice across groups of firms with unusually homogeneous opportunity sets. The empirical design is able to incorporate acquirer, target and geographical market variables as explanatory factors in mode choice. It is shown that the form of diversifying expansion adopted is highly sensitive to the anticipated costs of using the acquisition process.     

The impact of foreign takeovers: comparative evidence from foreign and domestic acquisitions in Germany

This study provides the first evidence of foreign takeover effects on the performance of acquired firms in Germany that considers a general takeover effect through the comparison with domestic takeovers. A propensity score matching approach combined with a difference-in-differences (DiD) estimator were performed with new high-quality panel data for manufacturing enterprises, provided by German official statistics. The results indicate a negative impact of foreign takeovers on employment and no productivity improvements for the period 2007–2009. This evidence contradicts existing empirical evidence for Germany which suggests significant productivity improvements and no changes in terms of employment. These findings are of particular interest to Germany as one of the most important FDI inflow destinations worldwide. They contribute to the foreign ownership performance premium literature as well as improving the understanding of foreign acquisition consequences, a subject of utmost topicality.     

Having more potential raiders weakens the takeover threat

It is generally assumed that a well-developed market for corporate control results in a takeover threat that disciplines management. We study the effects of a larger market for corporate control and show that an increase in the number of potential raiders of a firm may decrease the probability of a takeover. In turn, the weakened takeover threat results in weaker managerial incentives. In equilibrium, this implies lower managerial effort and therefore a lower ex ante value of the firm.     

BREACH OF CONTRACTS AND RENEGOTIATION IN CORPORATE TAKEOVERS*

This paper provides a formal model in which incumbent managers and workers sign a labour contract in the face of takeover pressures. We consider the possibilities: (i) workers can enhance their productivity by making an investment in specific human capital; (ii) a raider and workers will renegotiate the original contract after a takeover; and (iii) both the incumbent managers and the raider are concerned about their own reputations for being trustworthy in their contract arrangements. The main result shows that under certain conditions, a threat of takeovers forces the incumbent managers to select fewer investments in specific human capital even before a takeover although the incumbent managers have no incentive to behave opportunistically in the absence of takeover threats.     

Conditional versus unconditional bidding in takeovers

This paper explores the properties of multiple conditional takeover bids, and compares them with those of unconditional ones. If the initial takeover bid is unsuccessful, a raider is allowed to make a new tender offer to secure the required number of shares. Numerical analysis shows that the raider's expected profit from a conditional tender offer is higher than his expected profit from an unconditional bid, but still much lower than is predicted by static theories. However, the probability of a shareholder tendering his share is higher under the unconditional rather than conditional bidding. As the time between tender offers goes to zero, we show analytically that the expected profit from engaging in a conditional takeover bidding goes to zero similarly to the case of multiple unconditional offers.     

Investment Liberalization and Cross‐Border Acquisitions: The Effect of Partial Foreign Ownership

This paper investigates the optimal strategy for a multinational to conduct FDI. We find that the incentives to use acquisition rather than greenfield investment change significantly if the multinational is allowed to have already an ownership interest in the target local firm before the market is fully liberalized. Interestingly, when investment costs are sufficiently high, the multinational prefers not entering the market at all with partial ownership in place, whereas a cross‐border takeover would be the optimal entry mode otherwise. For intermediate levels of entry costs, holding a stake in the local producer reverses positively the profitability of a full acquisition compared to greenfield investment.     

Potential heterogeneity in target’s value and jump bidding in takeover auctions

This ticle analyses the pre-emptive jump bidding equilibrium in takeover auctions when bidders’ valuations of the target firm follow truncated normal distribution. It shows that potential heterogeneity of the targets’ value, measured by the standard deviation of the bidders’ valuation function, is especially important when it is small and, for extremely small values, the second bidder is almost always pre-empted. It also shows that, contrary to regular clock-style auctions, the increase in standard deviation may negatively affect the expected profit of the first bidder.     

The impact of cross-border acquisitions on target banks’ performance in an institutionally poor environment: Ukraine’s takeover wave

We investigate the impact of the 2005–2007 cross-border bank takeovers in Ukraine – a country with poor institutional quality – on the performance of the target banks. Because acquirers targeted mainly larger, less-capitalised banks, we control for selection bias by combining propensity score matching and a difference-in-difference methodology. We find that the cost efficiency of the acquired banks improved after takeover (because of a decreased reliance on deposits), but that neither their profitability nor their loan market shares increased. Overall, our findings tally only piecemeal with the existing multi-country studies for transition economies. This argues in favour of additional single-country research.     

How do mega-bank merger policy and regulations contribute to financial stability? Evidence from Australia and Canada

Although the role of financial regulatory failures in the global financial crisis (GFC) has been explored extensively in the post-GFC literature, our knowledge of the role of bank merger and takeover policy and regulation in reinforcing financial stability is limited. Based on an exploratory case study of Australia, which is examined in comparison to Canada, this article argues that competition policy and regulation contributed to financial stability by insulating the largest Australian and Canadian banks from domestic or foreign hostile takeover threats, and by limiting their asset size, and thus their internationalization and interconnections with the global banking community.     

Beyond rational behaviour: the non-financial variables that condition shareholder action during a takeover

This article provides experimental evidence that bidder and target shareholders of a takeover announcement exhibit differences in their actions explained by individual traits and by the environment in which investors must decide. These variables should be considered when designing an adequate investor protection policy. Before the crisis, investor protection regulation was based on the rational behaviour hypothesis and characterized by an overreliance on disclosure and financial literacy strategies. However, the new European policy on financial services has acknowledged the lack of adequate protection, and has increased transparency and access to information for investors in MIFID II and MiFIR.     

Golden Parachute as a Compensation-Shifting Mechanism

We demonstrate how a golden parachute can be used to improvethe target shareholders' net return by partially shifting themanagerial compensation burden to the buyer through a higheracquisition price. Consistent with the empirical observations,we show that (1) the golden parachute will be contingent ona change-of-control rather than solely on the manager's layoff,(2) the golden parachute will be promised early, for example,at the time of the manager's employment, not just in the faceof a takeover or a merger, (3) the shareholders would want toextend its coverage to other employees, and (4) the size ofthe parachute can be much larger than the manager's annual compensation.We also examine the effect of a golden parachute on the managerialincentive scheme.     

中国企业海外并购技术整合路径研究

中国企业海外并购已成为企业技术能力提升的主要来源和趋势。采用单案例研究方法,通过对中国一拖并购法国Mc Cormick工厂技术整合过程进行纵向深度分析,探讨海外并购技术整合路径。通过对并购决策阶段技术甄选、并购实施阶段技术转移和并购整合阶段技术重构进行分析发现,并购方通过技术整合路径实现目标方技术能力获取、转移、整合和内化,最终在消化吸收的基础上形成自主研发创新能力。相关研究结论丰富了现阶段关于技术整合的理论研究,打开了海外并购和技术跨越过程“黑箱”,同时为我国企业实施海外并购提供了经验借鉴。     

Moral hazard and incentives in a decentralized planning environment

The relationship between the center and the socialist manager in a decentralized planning environment is modeled in this article as one between principal and agent. A class of incentive contracts is examined in which, besides a sharing rule, the center stipulates an outcome target the manager must achieve; otherwise he will be paid a fixed payment. It is shown that the optimal incentive target is the lower bound of all feasible targets, while the optimal sharing rule is strictly locally convex at the optimal target.