Activism mergers

Boyson, Nicole M.; Gantchev, Nickolay; Shivdasani, Anil

doi:10.1016/j.jfineco.2017.06.008

Cited by 156 publications

(79 citation statements)

References 39 publications

(72 reference statements)

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“…25 Our assumption that the bidder's decision to perform due diligence is made after the activist's position is revealed is consistent with Boyson et al (2016), who find that in 70% of the events in their sample a takeover bid is announced within 2 years of a hedge fund initiating an activist campaign. 26 If B A > κ/ (1 − s) then the anticipation that the activist will put pressure on the target board to demand a higher premium would weaken the incentives of the bidder to perform due diligence.…”

Section: Discussionsupporting

confidence: 70%

“…However, in this case, the activist's profit is non-positive, yielding a contradiction. Third, we prove that the price function is given by (14). Since the market maker expects the activist to buy no shares if y = 0 and α * ≤ α shares if y = 1, the market maker sets the price at q + µh (α * ) if the activist buys α shares or less.…”

Section: A Proofs Of Main Resultsmentioning

confidence: 83%

“…We assume that compensation contracts, including golden parachutes, 14 cannot fully align the incentives of the incumbent board with the shareholders, which is consistent with the evidence by Jenter and Lewellen (2015). Moreover, we assume that the enforcement of the board's fiduciary duties is not sufficiently strong to eliminate the consumption of these private benefits.…”

Section: Incumbentmentioning

confidence: 80%

“…13 Provisions that make pills nonredeemable are illegal in most states, including New York and Delaware. 14 Hartzell et al (2004) point out that golden parachutes are often constrained due to IRS tax restrictions. 15 In principle, shareholders can limit the extent of the board's private benefits by setting the compensation of directors, changing the corporate charter, choosing the state of incorporation, etc.…”

Section: Incumbentmentioning

confidence: 99%

“…The activist buys less than α shares to conceal her position from the market maker, and therefore, the latter sets the share price q + µh (α * ) as long as α ≤ α. Off-equilibrium, if the activist buys more than α shares, the market maker assumes y = 1 and prices the shares accordingly as given by (14). Given this price function, the activist's expected profit conditional on y = 1 from buying α shares is given by…”

Section: If the Bidder Performs Due Diligence Then The Takeover Negotmentioning

confidence: 99%

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Corporate Control Activism

Corum

Levit

2015

SSRN Journal

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We identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential remedies and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play. This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Building on this insight, we study the implications of activist interventions on the M&A market. AbstractWe identify a commitment problem that prevents bidders from unseating resisting and entrenched incumbent directors of target companies through proxy fights. We discuss potential remedies and argue that activist investors are more resilient to this commitment problem and can mitigate the resulting inefficiencies by putting such companies into play.This result holds even if bidders and activists have similar expertise and can use similar techniques to challenge the incumbents, and it is consistent with the evidence that most proxy fights are launched by activists, not by bidders. Building on this insight, we study the implications of activist interventions on the M&A market.

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Section: Discussionsupporting

confidence: 70%

Section: A Proofs Of Main Resultsmentioning

confidence: 83%

Section: Incumbentmentioning

confidence: 80%

Section: Incumbentmentioning

confidence: 99%

Section: If the Bidder Performs Due Diligence Then The Takeover Negotmentioning

confidence: 99%

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Corporate Control Activism

Corum

Levit

2015

SSRN Journal

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How activist investors value target firms: Evidence from hedge fund presentations

Pfirrmann,

Eichner

2024

J Corp Accounting Finance

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This research study provides insights on how activist hedge funds perform valuation analyses of target firms. Relevant data was hand‐collected from a sample of activist hedge fund presentations. Based on the hedge funds’ valuation analyses, the undervaluation of the target firms amounts to approximately 30%, compared to the targets’ current share price. Besides, activist investors derive a value enhancement potential from their proposed strategies of approximately 70% to the targets’ current share price. These valuation results rely predominately on trading multiples. The dominant multiples are Enterprise value/EBITDA (EV/EBITDA) and Price/Earnings (P/E). Further, applied multiples are mainly forward‐looking, and the predicted performance measures are primarily consensus estimates. Besides, hedge funds sometimes adjust multiples arbitrarily to increase the comparability. Our results confirm that short‐term investors rely predominately on pricing analyses in their valuations.

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Behavioral merger and acquisition pricing: Application to Verizon mergers with AOL and Yahoo

2018

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Mergers and acquisitions (M&A) are important to companies as it allows them to acquire capabilities that they cannot create internally and to grow quickly. M&A transaction pricing relates to the pricing of these M&A deals and this article analyzes if behavioral finance factors like risk aversion, optimism, and loss aversion have an impact on this pricing. Prospect Theory and Cumulative Prospect Theory are applied to an agent-based model to solve this problem. Results of this article show that M&A transaction price does respond to a change in risk aversion and optimism traits of the acquirer and target companies respectively, as well as, loss aversion and certainty (probability of gains and losses). When, the acquirer is risk taking and target company is optimistic, the M&A transaction price increases. However, with increasing certainty of gains and reducing loss aversion (increasing loss aversion co-efficient; as gains are perceived to have the same weight as losses), the M&A transaction price seems to reduce. These results are compared with the recent mergers of Verizon and AOL as well as Verizon and Yahoo, to understand if these results would occur in practice. Analyzing these mergers, it seems that the outcomes from this model does provide insight on the pricing of these M&A transactions. This article also analyzes how these behaviors would impact the pricing when three different acquirers are trying to take over a target company. Results show that loss aversion has a significant effect on this pricing with risk aversion and optimism also having some minor impact. But, the existence of multiple acquirers does positively increase the M&A transaction price. | INTRODUCTIONMergers and acquisition (M&A) are a significant part of the strategy of leading companies globally. It is often hard to build industry leading capabilities within a company. So, leading companies like Google, Facebook, Apple, Verizon, and others have acquired companies to obtain these capabilities. As a result, there are numerous M&A transactions that occur during every business cycle globally. An important part of an M&A transaction for an acquirer is to make sure they do not pay too much to acquire the target company. While, the target company shareholders want to get as much as possible for the sale of the company. Therefore, M&A transaction pricing is an important aspect of undertaking such a transaction. At present, M&A transaction pricing is done using financial modeling techniques like discount cash flow analysis, industry multiples, and similar methods. However, these techniques do not consider behavioral implications that may impact the transaction pricing. Behavioral finance literature shows that these factors are important; for example, Kahneman and Tversky (1979) (Kahneman & Tversky, 1992). As a result, the next section of this article will provide a literature review of the M&A area specifically focusing on the pricing aspect. The subsequent sections will look at the methodology, results, and the final section will provi...

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Activism mergers

Abstract: Please refer to published version for the most recent bibliographic citation information. If a published version is known of, the repository item page linked to above, will contain details on accessing it.

Cited by 156 publications

References 39 publications

Corporate Control Activism

Corporate Control Activism

How activist investors value target firms: Evidence from hedge fund presentations

Behavioral merger and acquisition pricing: Application to Verizon mergers with AOL and Yahoo

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