The Consequence of Takeover Methods: Schemes of Arrangement vs. Takeover Offers

Abstract

This paper examined the effect of two selling processes in the UK market: takeover offers and schemes of arrangement. The latter is argued to allow a bidder to acquire a target company more cheaply and easily because schemes provide a lower threshold of the target company’s shares before “squeeze-out” procedures may be used. To address potential self-selection bias arising from bidders’ ability to choose their acquisition method, the propensity score matching methodology was applied to 803 takeovers of listed-target firms from 1995–2018. The results showed that the scheme of arrangement significantly reduces the target shareholders’ gain relative to the takeover offer.

Market Rule or Equal Opportunity Rule: An Empirical Analysis Based on Acquisitions of Chinese Listed Companies

“…Partial offers may appeal more to shareholders as they mitigate the free-rider problem and increase the anticipated number of shares tendered [17] . Enhanced takeover offers can result in increased acquirer returns and effectively alleviate agency conflicts [25,26] . The freezeout rule eliminates the well-known free-rider problem in tender offers [14,15] .…”