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Targeting target shareholders

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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

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Official URL: http://dx.doi.org/10.1287/mnsc.2016.2598

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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
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
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:
DateEvent
April 2018Published
12 January 2017Available
10 February 2016Accepted
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

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