How much is reasonable? The size of termination fees in mergers and acquisitions

The Impact of Go‐Shop Provisions in Merger Agreements

“…Our results are robust to using subsamples that ex‐ante are more prone to agency problems. That is a subset of deals in the top tercile of termination fees as a percent of the transaction value ( High Agency1) following Jeon and Ligon () and a subset of deals with below median institutional ownership and below median net of market returns ( High Agency2) following Bates and Lemmon (). The results are also robust to using matched samples based on industry, selling method, size, and book‐to‐market ratio.…”

“…Different types of merger clauses have been studied in the prior literature (Bates and Lemmon, 2003;Officer, We are grateful to Raghavendra Rau (Editor) and an anonymous referee for helpful comments and suggestions. We would like to thank Suman Banerjee, Louis Ederington, Chitru Fernando, Ben Gilbert, Bill Megginson, Sanjay Ramchander, Alexandre Skiba, and seminar 2003; Boone and Mulherin, 2007b;Jeon and Ligon, 2011;Denis and Macias, 2013). However, partly due to their relatively recent introduction, there has been virtually no study of go-shop provisions with only a few business law articles examining their potential impact (Sauter, 2008;Subramanium, 2008).…”

“…We note the presence of extreme observations in buy-and-hold abnormal returns. Thus, we follow the methodology ofOfficer (2003) andJeon and Ligon (2011) and exclude return measures less than 0% or greater than 200%.…”

An Analysis of the Determinants of Arbitrage Spread

“…Since target termination fees, where the target agrees to pay a fee if the target abrogates the agreement, are more common than bidder termination fees [28] [31], we focus on target terminations fees. Following Jeon and Ligon [32], we propose that it is the size of the fee, rather than the mere existence of a fee, that impacts the outcome of an M&A.…”

Shareholder wealth effects of M&A withdrawals

“…To identify the reason(s) for withdrawal, I hand-collect withdrawal announcements, executive comments, analysts' reports, and relevant news via Factiva 2 and use the deal synopses extracted from the SDC. In addition, as several studies (Boone and Mulherin 2007;Jeon and Ligon 2011) show that some termination fee information in the SDC database is not very accurate, I manually collect such information from the SEC 14A, S-4, and 14D fillings and compare it with the information provided by the SDC. I find that in my sample, there are only 12 deals for which termination fee provisions are missing in the SDC database.…”