Why Do Bidders Do Badly Out of Mergers? Some UK Evidence

Paul Barnes

Journal of Business Finance & Accounting, 1998, vol. 25, issue 5‐6, 571-594

Abstract: This paper builds on Roll’s hubris hypothesis as to why bidders overpay. It rejects the winner’s curse hypothesis (which implies that the generosity of the merger terms increases the probability of a successful bid) on both theoretical and empirical grounds. The empirical study examines a bargaining theory approach: that the terms offered are determined by the parties’ individual eagerness to merge. It also examines a modification of this: that the terms are dominated by the existence of a premium required by the market irrespective of synergy, thereby also dominating the decision as to whether a bid should be made.

Date: 1998
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