Acquiring-firm shareholders lost 12 cents at the announcement of acquisitions for every dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. Though the announcement losses to acquiring-firm shareholders in the 1980s are more than offset by gains to acquired-firm shareholders, the losses of bidders exceed the gains of targets from 1998 through 2001 by $134 billion. The 1998-2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisition announcements by firms with extremely high valuations. Without these announcements, the wealth of acquiring-firm shareholders would have increased. The large losses are consistent with the existence of negative synergies from the acquisitions, but the size of the losses in relation to the consideration paid for the acquisitions is large enough that part of the losses most likely results from investors reassessing the standalone value of the bidders. Firms that announce acquisitions with large dollar losses perform poorly afterwards.

We examine several possible explanations for why acquisitions of privately held firms are more profitable than acquisitions of public companies. Examining the effects of acquisition financing and venture capital (VC) backing, we document that VC-backing leads to significantly higher acquirer announcement returns, even after controlling for differences in deal characteristics and endogeneity in venture funding. To explain the higher profitability of VC backed targets, we investigate four hypotheses focusing on VC conflicts of interest with entrepreneurs and other venture investors. We find higher acquirer returns and lower target purchase price-to-book value ratios in acquisitions of targets backed by VC funds nearing maturity and VCs with close financial ties to acquirers, situations that create potential VC conflicts with other target investors. Acquisitions of targets backed by corporate VCs also exhibit higher acquirer announcement returns, which is consistent with corporate VCs having strategic goals that can be in conflict with maximizing financial returns. We also find evidence suggesting shifting strategic objectives of CVC parents and their weak commitment to the VC market can result in rapid exits from their portfolio companies causing higher wealth gains for acquirers. In summary, VC conflicts of interest can affect acquisition prices and outweigh any negotiating expertise or certification

Although recent regulations call for greater board independence, finance theory predicts that independence is not always in the shareholders ’ interest. In situations where it is more important for the board to provide advice than to monitor the CEO, more independent directors can decrease firm value because the CEO is not willing to share inside information with independent directors. I test this prediction by examining the connection between takeover returns and board “friendliness ” using social ties between the CEO and board members as a proxy for less independent, more “friendly ” boards. I find that social ties are associated with higher bidder announcement returns when advisory needs are high but with lower returns when monitoring needs are high. These effects intensify as the proportion of the board socially connected to the CEO increases and are not driven by correlations between social ties and other board characteristics. The evidence suggests that friendly boards can have both costs and benefits depending on the Recent regulations such as the Sarbanes-Oxley Act of 2002 and the NYSE new listing requirements of 2003 call for greater participation of outside directors in corporate governance. 1 new regulations are motivated at least in part by the view that independent directors are better

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We examine the announcement and post-acquisition share returns of 4,000 acquisitions by U.K. public firms during 1984-1998. We include acquisitions of domestic and cross-border targets, and of both publicly quoted and privately held targets. In acquisitions of domestic public targets, abnormal returns are negative over both the announcement and post-acquisition period. In acquisitions of cross-border public targets, abnormal returns are zero over the announcement period but negative over the post-acquisition period. In contrast, acquisitions of both domestic and cross-border private targets result in positive announcement returns and zero long run returns. The main difference between private and public acquisitions is that glamour acquirers experience negative announcement and long run returns in public acquisitions, whereas glamour acquirers do not under-perform in private acquisitions. Furthermore, whereas the under-performance of domestic public acquisitions is limited to acquirers using non-cash methods of payment, acquirers of domestic private targets that use non-cash methods do not under-perform.

The authors would like to thank Keith Cuthbertson for useful comments. The usual disclaimer applies.

for financial support. We own thanks to Ming Dong, Gordon Roberts, and the seminar participants at York University and Capital Markets CRC (including University of New South Wales and University of Technology, Sydney) for helpful comments and suggestions. RUN-UP OF ACQUIRER’S STOCK IN

The equity wealth effects of method of payment in takeover bids for privately held firms by

Hans Stoll for helpful comments and suggestions. When do bidders gain? The difference in returns to acquirers of listed and unlisted targets We examine announcement period excess returns to acquirers of listed and unlisted targets in 17 Western European countries over the interval 1996 through 2001. Acquirers of listed targets earn an insignificant average excess return of –0.38%, while acquirers of unlisted targets earn a significant average excess return of +1.48%. This “listing effect ” in acquirers ’ returns persists through time and across countries and remains after controlling for the method of payment for the target, the acquirer’s size and Tobin’s Q, pre-announcement leakage of information about the transaction, whether the acquisition created a blockholder in the acquirer’s ownership structure, whether the acquisition was a cross-border deal, and other variables. The fundamental factors that give rise to the listing effect, which has also been documented in U.S. acquisitions, remain elusive. When do bidders gain? The difference in returns to acquirers of listed and unlisted targets 1.

Voluntary disclosure to alleviate information asymmetry surrounding merger announcements: An examination of conference calls