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Bernhardt, Dan, Liu, Tingjun and Marquez, Robert (2018) Targeting target shareholders. Management Science, 64 (4). pp. 1477-1973. doi:10.1287/mnsc.2016.2598 ISSN 0025-1909.
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Official URL: http://dx.doi.org/10.1287/mnsc.2016.2598
Abstract
We integrate heterogeneity and uncertainty in investor valuations into a model of takeovers. Investors have dispersed valuations, holding shares in firms they value more highly, and a successful offer must win approval from the median target shareholder. We derive the consequences for an acquiring firm's takeover offer -- its size and cash/equity structure -- and implications for takeover premia and firm returns. Cash offers are best for the acquirer when the acquirer's own valuation exceeds the median target shareholder's. Equity offers are best given the reverse. The acquirer's share price always rises following cash acquisitions, but can fall following equity offers. The combined target-acquirer return is always higher after cash acquisitions than equity acquisitions (which can be negative). We characterize how synergies and uncertainty about target shareholder valuations affect the optimal offer and probability a takeover succeeds.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Economics | ||||||||
| Library of Congress Subject Headings (LCSH): | Valuation, Consolidation and merger of corporations, Stockholders | ||||||||
| Journal or Publication Title: | Management Science | ||||||||
| Publisher: | Institute for Operations Research and the Management Sciences (I N F O R M S) | ||||||||
| ISSN: | 0025-1909 | ||||||||
| Official Date: | April 2018 | ||||||||
| Dates: |
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| Volume: | 64 | ||||||||
| Number: | 4 | ||||||||
| Page Range: | pp. 1477-1973 | ||||||||
| DOI: | 10.1287/mnsc.2016.2598 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 25 April 2017 | ||||||||
| Date of first compliant Open Access: | 12 January 2018 |
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