Anchoring in Mergers and Acquisitions: Does the Regulatory Environment Matter?

Abstract

We examine the 52-week anchoring effect in the Indian takeover market that has a unique regulatory design. The Indian takeover regulation mandates the minimum offer price to be function of the target’s 26-week or 60-day high price. We show that the 52-week anchoring effect is robust even in the face of other regulatory anchors that differ from the widely cited 52-week high price. The anchoring effect dominates when the offer price exceeds the 52-week high price. Regulatory intervention in 2011 that shifts the floor price to a recent market price, such as the 60-day high price, does not attenuate the 52-week anchoring effect. We infer that acquirers are willing to pay a higher premium while anchoring to the 52-week high price, even when the regulatory focus is on lower reference prices. Besides, regulatory anchors also serve as additional focal points, demonstrated by the significance of the 26-week high price during its own period of regulation (2002-2011).

Investor protection: effects of takeover convergence

“…Firstly, in addition to past market prices, Regulation 8, SEBI SAST 2011 also includes past negotiated prices as a criterion for setting offer prices. Secondly, Ranganathan and Singh (2018) show that shift in market prices to 60 days in 2011 did not lead to better returns in terms of offer premium, rather 52-week high price plays a more important role. This tends to suggest that a simple, past stock price becomes more relevant for determining the offer premium than a complex combination of multiple prices as currently provisioned in Regulation 8 of SEBI SAST 2011.…”