Reference prices and withdrawn acquisitions

Abstract

Using a sample of 1525 withdrawn deals from 1981 to 2015 in the United States, we find that target firms close to their 52‐week high prices after merger announcements have lower withdrawal probabilities. The effect is different across merger waves. The out‐wave deals are sensitive to the target reference prices while in‐wave deals are not. Moreover, targets with post‐announcement prices close to 52‐week high tend to have higher withdrawn returns and receive higher adjustments of offering prices in renegotiation. Overall, our results suggest that target post‐announcement stock prices significantly affect deal outcomes.

‘Know when to fold 'em’: Policy uncertainty and acquisition abandonment

“…While its importance is widely acknowledged by the investment community, the post‐announcement period in acquisitions is under‐researched in the literature (Bhagwat et al, 2016; Lai et al, 2022; Skaife & Wangerin, 2013; Wong & O'Sullivan, 2001). Acquisition agreements tend to have a long interval between the initial deal announcement and scheduled completion date, which could last for months or even years (Chen et al, 2016; Ekelund et al, 2001).…”

“…In terms of acquisition contracts specifically, an initial acquisition agreement does not guarantee the completion of the deal (Bhagwat et al, 2016; Skaife & Wangerin, 2013). Acquisition parties continue to receive new information after signing the original agreement and keep reviewing the pending transaction (Hotchkiss et al, 2017; Lai et al, 2022). If policy uncertainty rises and persists after the initial deal announcement, it may change the economic implications of the proposed investment, potentially triggering acquisition renegotiation or even abandonment.…”