Working Paper: NBER ID: w18211
Authors: Ulrike Malmendier; Marcus Matthias Opp; Farzad Saidi
Abstract: Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and show that targets of cash offers are revalued on average by +15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences. While the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years than matched control firms, there are no differences between cash and stock targets, neither in the timing nor in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley, Desai, and Kim, 1983) by identifying a "look-ahead" bias built into their sample construction.
Keywords: takeover bids; target revaluation; cash offers; stock offers; failed bids
JEL Codes: G14; G34; D03; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cash offers (E41) | target revaluation (F31) |
| stock offers (G10) | target revaluation (F31) |
| type of bid (D44) | market perception of target's standalone value (G19) |
| cash bids (D44) | prior undervaluation of targets (G17) |
| differential revaluation (F31) | informational effects (D83) |
| future takeover activity (G34) | revaluation differences (F31) |
| differential post-failure operational policies (E61) | target revaluation (F31) |