Target Revaluation after Failed Takeover Attempts – Cash versus Stock

Ulrike Malmendier, Marcus Opp and Farzad Saidi

No 18211, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and show that targets of cash offers are revalued on average by +15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences. While the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years than matched control firms, there are no differences between cash and stock targets, neither in the timing nor in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley, Desai, and Kim, 1983) by identifying a "look-ahead" bias built into their sample construction.

JEL-codes: D03 D82 G14 G34 (search for similar items in EconPapers)
Date: 2012-07
Note: CF
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Published as Malmendier, Ulrike & Opp, Marcus M. & Saidi, Farzad, 2016. "Target revaluation after failed takeover attempts: Cash versus stock," Journal of Financial Economics, Elsevier, vol. 119(1), pages 92-106.

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Journal Article: Target revaluation after failed takeover attempts: Cash versus stock (2016)
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