Bond tender offers in mergers and acquisitions |
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| Affiliation: | 1. Indiana University, Kelley School of Business, 1309 E 10th Street, Bloomington, IN 47405-1701, United States;2. Lehigh University, College of Business and Economics, 621 Taylor Street, Bethlehem, PA 18015, United States;1. McCallum School of Business, Bentley University, Waltham, MA 02452, United States;2. John and Lillian Neff Department of Finance, College of Business and Innovation, University of Toledo, Toledo, OH 43606, United States;1. Sam M. Walton College of Business, University of Arkansas, Business Building 302, Fayetteville, AR 72701, United States;2. Daniels College of Business, University of Denver, 2101 S. University Blvd., Denver, CO 80208, United States;1. University of Georgia School of Law, 304 Rusk Hall, Athens, GA 30602, United States;2. Baylor University, Hankamer School of Business, One Bear Place, #98004, Waco, TX 76798-8004, United States |
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| Abstract: | We explore the motives and consequences of bond tender offers announced in connection with mergers and acquisitions (M&A). We find merging firms use bond tender offers strategically to renegotiate with bondholders to gain financial flexibility by reducing leverage and eliminating covenants, and to curtail the coinsurance benefits associated with M&A. Moreover, we find bondholder wealth effects depend not only on the bond's own characteristics, but also on the characteristics of its sibling bonds. Finally, the use of bond tender offers in M&A is associated with increased likelihood of deal consummation and lower acquisition premiums. |
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