Abstract
We develop a novel measure of target shareholders’ average purchase price (TAPP). In a sample of all U.S. public firm merger offers from 1990 to 2019, we find that: (1) the offer premium is positively correlated with the ratio of TAPP to the target’s pre-offer stock price; (2) TAPP dominates several other purchase-price estimators as an explanatory variable; (3) the TAPP effect is additive and about equal in its magnitude to that of the pre-offer 52-week-high price; (4) reference prices affect merger offers primarily through adjusting the offer premium; and (5) the reference-prices-induced increase in premium hurts acquirer shareholders. Our results portray TAPP as a promising shareholder purchase-price indicator.
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