Takeover Premiums and Anticipated Merger Gains in the Us Market for Corporate Control

Can Takeover Targets be Identified by Statistical Techniques?: Some UK Evidence

“…Following Holland and Hodgkinson (1994) and Barnes (1996), the point of 1 month before the announcement was taken in the empirical study as that point by which suf®cient anticipatory price movement should have occurred as to signal a merger when combined with accounting numbers in a predictive model, yet still be capable of earning excess returns. As was mentioned earlier, the total share price increase in the UK over the period 2 months before the announcement to 1 month afterwards is about 31% and as the total premium offered in a merger bid is about 30% (Green®eld, 1992;Crawford and Lechner, 1996), it is very reasonable to conclude that a negligible amount of further anticipatory share price changes usually occurs earlier than then. The most popular way of measuring signi®cant share price changes is by estimating share price abnormal returns AR by using the market model,…”

What Drives the Payment of Higher Merger Premiums?

“…Similar to Raj and Forsyth (2003), Hayward and Hambrick (1997), and Crawford and Lechner (1996), the acquisition premium is calculated over the period in which target stock price is not affected by information on the merger. In this study, the window begins 30 trading days before the first announcement of the takeover and ends when the offer is accepted by the target shareholders.…”

Determination of merger premium — Interralationship between corporate, target average and market

“…Higher PE ratios are usually not followed by faster earnings growth, instead, it is usually followed by lower stock price growth during the following decade (Campbell,Shiller,1998). Research on acquisition anticipation shows that efficient markets try to anticipate the expected value of different sources of synergy into the value of potential target firms [7] . This anticipation is being succesively adjusted as firms in rival industries are acquired and acquisition possibilities change (Wallace, et al, 2000).…”

“…The premium may be a share of incremental value from the potential synergies between the merging firms yielded to the target shareholders. Varaiya(1987) [6] and Crawford, Lechner (1996) [7] found that the price offered by a bidder should be a function of both the underlying value of the target and all potential gains the bidder expects to make from the takeover. Sirower(1997) [4] argued when high 2011 International Conference on Management Science & Engineering (18 th ) September [13][14][15]2011 Rome, Italy premiums are paid, the value of synergies often have to be sufficient to reach a break-even point and this would lead to the synergy trap.…”