Negotiations under the threat of an auction

Abstract

Most gains in takeovers accrue to targets, suggesting the presence of strong competition among acquirers. Yet recent literature documents a seemingly contradictory fact; a large majority of all takeovers occur after one-on-one negotiations. We seek to determine whether the acquirers in such friendly deals are totally insulated from competitive pressures. Realizing that the mere possibility of an open auction might threaten negotiations, we emphasize the role of ex ante competition, the likelihood that rival bidders will appear. Using several proxies, we find that ex ante competition increases the bid premium for directly-negotiated deals. We show also that auction costs reduce the bid premium required by targets in negotiations.

On the Importance of Golden Parachutes

“…Additionally, our multivariate tests control for target initiated deals because the results in Aktas, de Bodt, and Roll (2010) suggest that this variable is a reasonable proxy for the target's bargaining power. Our regressions also include input-output/sales-purchases (independent) variables between the target and the acquirer industries similar to those in Ahern (2012).…”

Bidder contests in international mergers and acquisitions: The impact of toeholds, preemptive bidding, and termination fees

“…Fidrmuc, Roosenboom, Paap and Teunissen (2012) report a significantly positive association with financial buyers, the liquidity index that proxies for latent competition, target profitability and target leverage. Aktas, de Bodt and Roll (2010) find a significantly positive relation between relative size or stock payment and the likelihood of negotiation. Boone and Mulherin (2008;2007b) document a negative (positive) influence of stock payment (cash payment), bidder top-tier advisor, and bidder and target size on the probability of an auction, and a positive effect of unsolicited offers.…”

“…The results are available from the authors upon request. Aktas, de Bodt and Roll (2010) (2013) show that foreign bidders are less likely to be successful if the government of the target's country opposes the transaction on the basis of economic nationalism, i.e., preferring the target to remain domestically owned). Cross border bidder is a dummy variable that takes the value of 1 when the bidder and target are from different countries.…”

“…We concentrate on three takeover bidding strategies that have the potential to affect the risk of post-bid competition and the 2 An alternative approach is to examine the level of private competition before the public announcement of a takeover offer. Fidrmuc, Roosenboom, Paap and Teunissen (2012), Aktas, de Bodt and Roll (2010), Boone and Mulherin (2008;2007b;2007a), among others, examine the private takeover process and report that the market for corporate control is more competitive than what can be inferred from the public takeover bidding process. However, a caveat is that information on the private takeover process for the U.S. is collected from SEC filings, while no such data source exists for the international takeover market.…”

Sold Below Value? Why Some Targets Accept Very Low and Even Negative Takeover Premiums

“…Since the rst systematic analysis on oer prices by Bradley (1980), large-sample evidence is only starting to emerge. (Aktas et al, 2010;Boone and Mulherin, 2008), with special emphasis on target shareholder free-riding (Grossman and Hart, 1980;Bradley, 1980), jumps in consecutive and/or competing bids, pre-emptive bidding and the role of toeholds (Fishman, 1988;Betton and Eckbo, 2000;Betton et al, 2009). The rst of the two strands analyzes oer prices and their determinants more directly.…”