The price of corporate acquisition: determinants of cash takeover premia

Vijay Gondhalekar, R. Raymond Sant and Stephen Ferris

Applied Economics Letters, 2004, vol. 11, issue 12, 735-739

Abstract: A sample of cash-only acquisitions of Nasdaq targets during 1973-1999 is examined. It is found that the mean (median) percentage premia declines from 74% (65%) during the 1970s to 47% (42%) in the 1990s. Consistent with recent research on the value reduction associated with diversification, it is observed that acquirers generally will not pay higher prices to acquire firms operating in different industries. It is found that over-invested firms pursue acquisitions more aggressively by paying higher premia while under-invested firms pay less, on average. Finally, the evidence suggests that agency rather than synergistic or hubris effects influence the level of merger premia.

Date: 2004
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DOI: 10.1080/1350485042000254601

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