Stock option grants to target CEOs during private merger negotiations |
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Authors: | Eliezer M. Fich Jie CaiAnh L. Tran |
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Affiliation: | a LeBow College of Business, Drexel University, 3141 Chestnut Street, Philadelphia, PA 19104, USA b Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom |
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Abstract: | Unscheduled stock options to target chief executive officers (CEOs) are a nontrivial phenomenon during private merger negotiations. In 920 acquisition bids during 1999-2007, over 13% of targets grant them. These options substitute for golden parachutes and compensate target CEOs for the benefits they forfeit because of the merger. Targets granting unscheduled options are more likely to be acquired but they earn lower premiums. Consequently, deal value drops by $62 for every dollar target CEOs receive from unscheduled options. Conversely, acquirers of targets offering these awards experience higher returns. Therefore, deals involving unscheduled grants exhibit a transfer of wealth from target shareholders to bidder shareholders. |
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Keywords: | G30 G34 J33 K22 |
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