Takeover Bids Research Articles

The endogeneity of poison pill adoption and unsolicited takeovers

PurposePoison pill adoption is often considered as the most effective tactic to fend off an unsolicited takeover bid. However, it is difficult to identify the deterrent effect because the adoption is naturally endogenous. The purpose of this paper is to use plausibly exogenous instruments to mitigate the endogeneity problem.Design/methodology/approachThe author employs two econometric models: the linear probability model and the bivariate probit model to examine the effect of poison pills on the outcome of a takeover.FindingsUsing a sample of 655 unsolicited takeovers, the author finds that poison pills substantially reduce the likelihood that a takeover bid, once undesirably placed, is completed. This negative impact strongly supports the manager entrenchment hypothesis in that managers adopt poison pills to ensure the continuation of their private benefits. However, the author finds no strong evidence consistent with the shareholder interest hypothesis that poison pills enhance the management’s ability to negotiate higher premiums or reject inadequate offers.Research limitations/implicationsThe demise of the market for unsolicited takeovers with the disappearance of poison pills can be explained by the fact that poison pills, if adopted, will have an absolute deterrent effect on the takeover likelihood of success, and targets always have the power to adopt them instantly.Practical implicationsThere should be policies to limit the power of managers to adopt poison pills because it causes the entrenchment problem which will negatively affect the firm value.Originality/valueThe author tackles the problem of the endogeneity of poison pill adoptions. The author shows that poison pills have a strong negative effect on the takeover outcome and the result can explain the decreasing number of unsolicited takeovers.

Indexing mergers and acquisitions

We measure the efficiency of mergers and acquisitions by putting forward an index (the ‘M&A Index’) based on stochastic frontier analysis. The M&A Index is calculated for each takeover deal and is standardized between 0 and 1. An acquisition with a higher index encompasses higher efficiency. We find that takeover bids with higher M&A Indices are more likely to succeed. Moreover, the M&A Index shows a strong and positive relation with the acquirers’ post-acquisition stock performance in the short run and operating performance in the long run. After constructing three portfolios under a buy-and-hold strategy, we find that efficient portfolios with the highest indices earn higher equity returns and monthly alphas than inefficient portfolios with the lowest indices. Overall, our findings indicate that the M&A Index is positively associated with merger outcomes for acquirers.

Implementacja XIII Dyrektywy do polskiego porządku prawnego – zagadnienia wybrane

Tematem artykułu jest implementacja wybranych postanowień XIII Dyrektywy do polskiego porządku prawnego. Szczegółowo opisano obowiązek wystosowania wezwania do zapisywania się na sprzedaż lub zamianę akcji publicznej spółki akcyjnej w przypadku jej wrogiego przejęcia. Scharakteryzowano zasady neutralności i przełamania recypowane do ustawy o ofercie publicznej. Poddano ocenie prawidłowość implementacji XIII Dyrektywy do polskiego porządku prawnego oraz dopuszczalność stosowania środków obrony przed wrogim przejęciem.

Contested takeovers of family firms and socioemotional wealth: a case study

PurposeThe purpose of this paper is to provide an understanding of the importance of socioemotional wealth (SEW) to family firms in Poland viewed through the lens of the events surrounding the first hostile takeover bid of the post-communist era on the Warsaw Stock Exchange when the clothing company Vistula & Wólczanka (V&W) made an unsolicited, leveraged bid for the family-controlled jewelry company W. Kruk.Design/methodology/approachThe 2008 takeover and its aftermath are described in the context of the corporate governance and legal environment in Poland. The case study events demonstrate the connection between firm behavior and SEW theory.FindingsAfter the acquisition of W. Kruk by V&W, the Kruk family purchased stock in the newly named Vistula Group and gained influence over the supervisory board in concert with a business ally, eventually wresting back control of the company in the style of a Pac-Man “defense.” The case study illustrates the importance of SEW in family firm takeovers.Research limitations/implicationsThe case study design has limitations for generalizability. Nevertheless the research highlights the important role of SEW preservation in understanding the market for corporate control of listed family firms in Poland.Practical implicationsUnderstanding the reaction by family firms to takeover bids requires recognition that there is a tradeoff between financial and SEW considerations, not just financial gains and losses.Originality/valueThe case study demonstrates the importance of SEW to family firms and suggests that the balance of power in takeovers on the Polish stock market rests with incumbent management.

Putting Directors’ Money Where Their Mouths Are: A New Approach to Improving Corporate Takeover Dynamics

This paper aims to improve shareholder protection from underpriced bids in takeover situations. Target boards, as stewards of the corporation who typically possess superior information about the desirability of unsolicited bids, can be expected to protect their shareholders from such bids. Unfortunately, because they have a conflict of interest with their shareholders in takeover situations, they tend to reject hostile bids to an excessive degree. Moreover, the current Delaware doctrine is ineffective in monitoring boards’ responses to takeovers, largely because boards might use selective inside information to which the courts lack access and because their judgments are backed by subjective, hard-to-attack legal and financial expert opinions which courts are ill-equipped to challenge. To rectify the problems of courts’ and shareholders’ inferior information as well as boards’ skewed incentives, I propose an arrangement in which target boards wishing to veto nonstructurally coercive takeover bids would be encouraged to demonstrate their opposition by committing to buy, if the bid fails, and hold for a specified period of time a certain amount of target stock at the bid price. The directors would be incentivized to follow the arrangement because it would require courts, in a potential fiduciary duties lawsuit, to give directors’ commitments significant weight when evaluating their defense that they rejected the bid to protect their shareholders. Adopting the proposed arrangement can significantly address important problems in corporate takeovers that have long claimed the attention of corporate law scholars and financial economists. In particular, inducing target boards to credibly transmit their genuine bottom-line understanding about the desirability of a bid would offset the courts’ inability to review the directors’ decision effectively. Imposing personal costs that the directors would uniquely incur if they wish to reject hostile bids would counteract the directors’ ex-post incentive to reject hostile bids excessively. Increasing the directors’ cost of a takeover attempt would improve market discipline and motivate the directors to increase firm value and reduce agency costs. Finally, favoring firms with high long-term value would protect them from myopic bidders and alleviate their unrelenting pressure to meet quarterly earnings expectations. For these reasons, the proposed arrangement could greatly improve corporate takeover dynamics.

Financial versus strategic bidders: Evidence from unsuccessful takeover bids

Even failed takeovers can identify undervalued target firms. We find that compared to financial bidders, strategic buyers have a greater lasting valuation effect on the targets. Strategic bidders thus appear to be superior in identifying undervalued targets.

Security analyst target prices as reference point and takeover completion

Based on prospect theory, we posit that security analysts’ target prices function as a reference point for takeover bids and affect deal completion. Using a sample of US takeovers from 1999 to 2014, we find a negative relation between target prices for a takeover target and the chances for successful deal completion. High degrees of target price dispersion indicate high reference points for some investors. Accordingly, we find low completion rates when target price dispersion is high. Our results hold for both ultimate deal completion and implied completion probability measured shortly after bids were announced as an alternative measure for completion likelihood.

Oferta pública de aquisições de ações: evidências de variação de valor no mercado financeiro

A hipótese de eficiência do mercado em sua forma semiforte, alvitra que os preços se ajustam instantaneamente refletindo a divulgação pública de quaisquer informações relevantes, coibindo oportunidades de retornos anormais arbitrários. O objetivo deste estudo é verificar a ocorrência de variação no preço das ações, por ocasião da Oferta Pública de Aquisição de Ações (OPA), no mercado acionário brasileiro, no período entre 2006 a 2015. A metodologia da pesquisa utilizada é o estudo de eventos para avaliar possibilidade de retornos anormais de ativos em relação ao mercado. Esta pesquisa se distingue pela quantidade de OPAs (65) ocorridas em um longo período (10 anos) estudados, contribuindo pela agregação, ao aproximar-se da curva normal. Foram testadas as variações no preço das ações no período que antecedeu, durante e imediatamente após o evento. Os resultados encontrados, em relação ao evento de OPA, evidenciam que, em sua maioria, há significância estatística de variação no preço destas ações. A conclusão é que há evidências da hipótese de eficiência do mercado brasileiro em sua forma semiforte, no período estudado, ocasionada pelo evento das OPAs.

Certainty in Decision-Making: An Assessment of the Australian Takeovers Panel

Certainty in Decision-Making: An Assessment of the Australian Takeovers Panel

Bid Resistance by Takeover Targets: Managerial Bargaining or Bad Faith?

This paper examines management’s motives for rejecting takeover bids and the associated shareholder wealth effects. We develop measures of initial bid quality and find a significant negative correlation between the quality of a bid and rejection. The likelihood of higher follow-on offers decreases with bid quality and is greater when targets have classified boards and chief executive officers (CEOs) with significant personal wealth tied to the transaction. Target CEOs who fail to close high-quality offers experience a significant rate of forced turnover. Overall, the results support a price improvement motive for contested bids.

Takeover Bidss Profile Under Mandatory Bid Rule: Evidence from an Emerging Market

This paper examines the main determinants of the bid premium and tender success under mandatory bid rule, viewed as a corporate governance mechanism in blockholder regimes. We explore a comprehensive dataset covering all the takeover bids organized on the Romanian market for corporate control between 1998 and 2012. The peculiar institutional framework in Romania allows to factor in the analysis novel structural elements, like privatization transactions conducted by the government outside the stock market, trading made by insiders before the bid and dilutive capital increases. After controlling for the influence of ownership and corporate governance attributes of targets, our main findings suggest that various market price components are strong predictors of both bid premiums and tender success. The tender decision depends also on the scope of expropriation perceived by minority shareholders of the target. Our study concludes that stronger capital market discipline is at least as important as the legal details of takeover regulation for insuring an effective protection of minority shareholders.

Analysis of the effects of sectoral and subsectoral forces on forest policy related issues: the case of Cameroon's forest policy sector Analyse des effets des forces sectorielles et sous-sectorielles sur les questions liées à la gestion forestière: le cas du secteur de politique forestière au Cameroun Análisis de los efectos de las fuerzas sectoriales y subsectoriales en temas relacionados con

SUMMARY The history of forests regulation and institutional policy in Cameroon dates back to the erstwhile colonial period (1884–1961) when the German, British, and French administrations setup administrative and managerial entities to regulate the forest sector. The post-colonial administration continued with the colonial era regulations until 1981 when a new forest law was adopted. Cameroon's forest sector went through a reform process in 1994 with the enactment of a comprehensive forestry law linking the forest sector with a network of subsectors. This paper employs the case of Cameroon's forest policy reform process to respond to three logical research questions on the effects of sectoral and subsectoral forces on forest policy related issues: (1) what differentiates a critical subsector from a non-critical one? (2) does a stable sectoral network represent a successful takeover bid by a critical subsectoral one? (3) what are the conditions under which sectors can continue to affect subsectors? A struc...

The Deterrent Effect of the Securities and Exchange Commission’s Enforcement Intensity on Illegal Insider Trading: Evidence from Run-up before News Events

We examine whether public enforcement of US insider-trading laws affects price discovery. Examining insider-trading civil cases filed by the Securities and Exchange Commission (SEC) from 2003 to 2011, we find that the price impact on insider-trading days is much smaller than the effect documented for the 1980s, consistent with increased fear of prosecution. Moreover, we find that preannouncement anticipatory run-up in comprehensive samples of takeover bids and earnings announcements is negatively related to resource-based measures of public enforcement intensity, which suggests that aggressive SEC enforcement deters illegal activity. In addition, we find that quoted bid-ask spreads are negatively related to the SEC’s enforcement intensity, which suggests that greater enforcement improves liquidity. Moreover, the negative and significant relation between run-up and the SEC’s enforcement intensity persists after controlling for quoted spreads.

Toe Hold Collaborations Beyond Insider Trading

With the proliferation of the new practice of wolf packing, the incidence of toehold (TH) collaborations as part of a takeover campaign is likely to increase as well. In addition to affecting the size of the TH, potentially transforming the TH into a foothold, TH collaborations may include asymmetric agreements between the collaborators that distort the incentives of the bidders and lead to inefficient results. For example, the asymmetric agreement may include contingent distribution rights that make losing the takeover bid to a rival bidder, even to a higher-value use bidder, undesirable. Losing may become so prohibitively expensive that the bidder may continue to bid beyond its reservation-value. As a result, ex-ante, asymmetric TH collaborations are likely to deter potential rival bidders, which may motivate the collaborators to enter into such agreements. Bidders may use TH collaborations to present a credible threat of winning determination in order to curb competing bids, including efficient bids, which will negatively affect both shareholder value and social wealth. This Article demonstrates and analyses potential distortions caused by TH collaboration agreements.

The Timing and Source of Long-Run Returns Following Repurchases

This paper investigates the timing and source of anomalous positive long-run abnormal returns following repurchase authorizations. Returns between program authorization and completion announcements are indistinguishable from 0. Abnormal returns occur onlyaftercompletion announcements. Long-run returns are largely attributable to announcement returns at subsequent authorizations and takeover attempts; that is, anomalous post-authorization returns are not persistent drifts but rather step functions. These findings have important implications for prior papers examining this most persistent and widespread anomaly. Further, our results serve to refocus the search for a rational explanation for the anomaly on subsequent repurchase announcements and takeover bids.

Mandatory Takeover Bid(“TOB”) Rules in Japan

Mandatory Takeover Bid(“TOB”) Rules in Japan

AkzoNobel rejects PPG’s second bid

AkzoNobel has rejected a second takeover bid from PPG Industries, this time for $26.3 billion. PPG made its initial offer of about $22 billion on March 2. The two paint companies appear to be some distance from agreeing to a deal. PPG says the Dutch firm refused to meet and rejected the revised offer one day after it was made. AkzoNobel says the new proposal doesn’t reflect the firm’s plan to spin off its chemicals business and will lead to significant job cuts. Four Dutch provinces have released a statement suggesting the takeover could result in the loss of 5,000 jobs in the Netherlands.

The Impact of Economic Nationalism in Europe on the Returns to Rivals of Crossborder M&A Bids

We examine the wealth effects of economic nationalism on domestic and foreign rivals using a novel sample of government blocked EU cross-border takeover bids. Regressions show a significantly larger net contagion effect of 0.73% (€31m) on bid announcement for domestic rivals relative to foreign. Government intervention results in larger negative returns, which become even more negative at bid resolution, especially for domestic rivals. Domestic rivals lose significantly more (€23m) over the whole bid period, likely consistent with lower future takeover likelihood. We show that economic nationalism has a significant cost, which is not only confined to the EU blocking country.

Real estate industry takeover bid patterns: Spain, a case study

The upward of the Spanish real estate sector (2000–2007) caused the excessive growth of many companies mainly through acquisitions. This study aimed to identify behaviour patterns for takeover bids in the Spanish real estate industry, which was particularly hard hit by the last financial crisis. Considering that in bubble growing/burst periods, economic and financial variables are considered the most useful measures (market variables can have reliability problems), a set of 20 economic and financial variables was analysed, along with their relationship with listed companies’ participation in this type of operations over the period 2000–2012. Both acquiring and target companies were included in the 354 cases studied here.A two-stage methodology was used. Firstly, the principal component method was applied to identify the variables with greatest explanatory capacity. That was followed by the construction of a decision tree-based predictive model, more specifically a CHAID, which categorised the set of companies analysed to establish behaviour patterns.The findings of this study show that the five principal components found to afford the greatest explanatory capacity were: (a) liquidity, solvency and borrowing capacity; (b) size; (c) economic performance; (d) operating capacity; and (e) financial performance. Taken together, the first two components explained 70% of dependent variable behaviour, primarily relative to buyers.Overall, the model proposed explained on the order of 80% of dependent variable behaviour. The percentage not explained by the model was attributed essentially to strategic issues, financial speculation and private interests, among other factors present in decision-making.

Returns to acquirers of listed and unlisted targets: an empirical study of Australian bidders

PurposeThis paper aims to evaluate the robustness of the listing effect in Australia, that is whether acquisitions of private firms create more value to the bidding firm’s shareholders than acquisitions of publicly listed firms.Design/methodology/approachThe authors analyze the market reaction to the announcement of takeover bids initiated by Australian public firms on private and public targets over the period 1990-2011. The analysis controls for a wide range of bidder, deal and target country characteristics that are likely to correlate with the target’s listing status and acquirer abnormal returns. The authors also use a selection model to address the endogenous choice of the target’s listing status.FindingsThe results indicate that bidders experience significantly higher abnormal returns of about 1.7 per cent in the 11-day event window when the target is a private firm. The authors show that this result is broad-based and persistent. It does not appear to depend on whether the target is small or large; whether it is related or unrelated to the bidder’s industry; whether it is in the resources sector; and whether the transaction is domestic or cross-border. They find some evidence that bidder returns might be stronger for larger acquisitions, for unrelated targets, and in poor market conditions such as in the wake of the recent global financial crisis.Research limitations/implicationsThe research would benefit from the inclusion of the bidding firm’s ownership and governance characteristics.Practical implicationsThe results support the view that market frictions contribute to make private firms attractive targets.Originality/valueThe analysis confirms the pervasiveness of the listing effect in a market characterized by a lesser degree of competition, higher search costs and the significance of the natural resources sector.