The rationale behind interfirm tender offers

Abstract

This paper investigates the rationale behind interlirm tender offers by examining the returns realized by the stockholders of lirms that were the targets of unsuccessful tender offers and lirms that have made unsuccessful offers. Our results suggest that the permanent positive revaluation of the unsuccessful target shares [documented by Dodd and Ruback (1977) and Bradley (1980)] is due primarily to the emergence of and/or the anticipation of another bid that would ultimately result in the transfer of control of the target resources. We also find that the rejection of a tender offer has differential effects on the share prices of the unsuccessful bidding firms depending upon whether the tender offer process results in a change in the control of target resources. On the basis of these results we conclude that acquisitions via tender offers are attempts by bidding firms to exploit potential synergies, not simply superior information regarding the 'true' value of the target resources.

Divergent Market Responses to Human Capital Reorganizations

“…Also see Dyer, Kale and Singh (2001) and Keasler and Denning (2009) for alliances; Allen and McConnell (1998) for carve-outs; Desai and Jain (1999) and Daley, Mehrotra and Sivakumar (1997) for spinoffs. 9 For some examples refer to Bradley, Dsai and Kim (1983) and Lakonishok and Vermaelen (1990) for tender offers; Constantinides and Grundy (1989) and Ikenberry, Lakonishok and Vermaelen (1995) for repurchases; Masulis (1980) and Copeland and Lee (1991) for Exchanges; and Dann and Mikkelson (1984) for capital structure changes. 10 See Chen, Mehrotra, Sivakumar and Yu (2001).…”

Acquisitions and Takeovers

“…Bradley, Desai,and Kim(1983) analyzed the effects of takeover failures on target firm stockholders and found that, while the initial reaction to the announcement of the failure is negative, albeit statistically insignificant, a substantial number of target firms are taken over within 60 days of the first takeover is failing, earning significant excess returns (50% to 66%).…”

“…When an attempt at a takeover fails, Bradley, Desai and Kim (1983) report negative excess returns of 5% to bidding firm stockholders around the announcement of the failure.…”

Corporate governance and strategic resource allocation: The case of information technology investments

“…For instance, a supermajority amendment increases the optimal bid of the acquiring firm when compared to the conventional case of simple majority. In addition, when private synergies exist in a potential acquisition (Bradley, Desai, and Kim, 1983), takeover defenses (e.g., classified board) put the target firm's board of directors in a position to negotiate directly with the bidding firm. This mechanism mitigates the inefficiency of dispersed shareholders in extracting gains from the acquirer, thus eliminating the often-cited 'free-rider problem' of takeovers (Grossman and Hart, 1980).…”