Failed acquisition offers: The impact of failure reasons on target valuation

Abstract

Using a large hand-collected sample of 1,246 failed acquisition offers from 1979 to 2016, we examine the effects of failure reasons on the revaluation of target firms. We find a negative revaluation of -16 % for failures not caused by target rejection, suggesting exposure of adverse information about the target's economic conditions. Conversely, targets declining offers show a positive revaluation of +7 %, indicating target management's private information about the firm's superior prospects. These revaluation effects are stronger for hard-to-value targets, consistent with failure reasons revealing more information when there is greater uncertainty about the target's value.