The Returns to Acquiring Firms in Tender Offers: Evidence from Three Decades

Abstract

M Extensive empirical evidence supports the view that takeovers are beneficial to the shareholders of target firms.I Virtually every study has found that these shareholders receive large premiums, averaging about 30%, for their shares. The wealth effects on shareholders of acquiring firms, however, are much more puzzling. Researchers measuring these wealth effects have found them to average close to zero and to be negative for some categories of offers. The same logic that argues that large premiums paid in takeovers are evidence that takeovers benefit shareholders of target firms, also leads some to argue that the absence of stock price increases (and the existence of stock price declines in some cases) for bidding firms reflects neutral (or bad) investments by management of bidding firms. In this study, shareholder wealth effects in tender offers are examined and, more specificly, characteristics of tender offer bids that may determine the returns earned by the shareholders of acquiring firms are explored. For more than 450 tender offers from 1963-1986, We thank Paula Moolhuyzen, Ken Lehn, Jeffry Netter, and the referees of this journal for many helpful comments and suggestions. The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission of of the authors' colleagues on the staff of the Commission.

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