University of Delaware for their helpful comments and discussions. Breaking up is hard to do? An analysis of termination fee provisions and merger outcomes This paper provides large-sample evidence pertaining to the use of and wealth effects associated with provisions for termination fees in merger agreements between 1989 and 1998. The evidence suggests that target termination fee clauses are an efficient contracting device through which target managers compensate bidders for the costs associated with bid negotiation and the potential for information expropriation by third parties. While target fees truncate a normal bidding process, target shareholders gain from higher completion rates and greater negotiated takeover premiums in deals that include target termination fee clauses. Our findings regarding bidder fee provisions indicate that these clauses are used to lock-in a portion of target wealth gains in deals with higher negotiating costs and greater costs associated with bid failure. Compensation for bidder fee provisions appears to take the form of concomitant target fee provisions, and lower bid premiums

This paper provides large-sample evidence pertaining to the use of and wealth effects associated with provisions for termination fees in merger agreements between 1989 and 1998.

Abstract not found

Observable (ex-post) competition in the merger and acquisition (M&A) market seems to be very low. In this paper, we focus on the role of ex-ante competition and show that, when this is taken into account, the M&A market is more competitive than it seems. We first provide a theoretical analysis where we model takeovers as a two-stage process. The initial stage corresponds to a oneto-one negotiation with the target. If the negotiation fails, there is a second stage in which either a takeover battle among rivals occurs, or the target firm organizes a competitive auction. One of the main empirical predictions is that the higher the anticipated competition in the second stage, the higher the bid offered in the first stage. We then provide an empirical test of this prediction using a dataset of friendly deals for which, by construction, no ex-post competition is observable. We use the deal frequency in a given industry as a proxy for ex-ante competition, and we show that this variable is negatively related to the share of the value creation kept by the acquirer.

the UK The UK context with its distinct regulation on information disclosure during the takeover period provides an excellent setting to examine how the regulation can affect the roles that arbitrageurs can play in the takeover game. Using a manually-collected dataset and a variety of methods to tackle the endogeneity problem, we find supporting evidence on the importance of disclosure regulation. The UK strict disclosure rule makes it hard for arbitrageurs to outperform the average investors in the market. Furthermore, being forced to reveal their identity too soon, the presence of arbitrageurs actually reduces bid premium. There is little evidence that arbitrageurs can exert influence on the chance that the bid can go through. i

We investigate the choice between rights offerings and private equity placements, using almost the entire population of rights offerings and private placements conducted by listed Swedish firms over the period 1986-1997. We find that firms with a higher degree of asymmetric information about firm value are more likely to choose a private placement, in particular if there is uncertainty about the value of a new investment opportunity. There is also a significant positive association between the choice of a private placement and the establishment of a strategic alliance, joint venture, or another product market relationship concurrent with the issue. We report positive average stock market reactions at the announcements of both issue types, but that the valuation effect is significantly larger for firms announcing a private placement than for firms announcing a rights issue. Furthermore, private placement firms increase their operating performance after the issue, whereas rights issue firms do not. The evidence is consistent with firms choosing private placements to overcome underinvestment problems and to reduce contracting costs in product market relationships. JEL classification: G32; G15

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1.1 Stakeholding, corporate governance and company law Szwajkowski (2000) suggests that the debate on stakeholder versus shareholder orientation could potentially be entirely defused. He interprets an empirical study that demonstrates strong parallels between stakeholder valuation of firms (measured as overall reputation) and shareholder valuation (stock market returns). High quality companies are less vulnerable to market downturns, as they exhibit a generally low systematic risk during recession, and exhibit higher volatility within the safety of an expanding market. This is not the case for lowest rated companies. Szwajkowski couples this evidence with a conceptual analysis showing that the most famous pronouncements of Adam Smith and Milton Friedman actually argue for, not against, the stakeholder approach. He interprets Smith’s invisible hand to mean that society has an inherent, self-sustaining, process for controlling companies that act solely out of self-interest when such a position is at odds with stakeholder welfare. He argues that Friedman himself qualified the imperative that business should maximise shareholder wealth with the caveat “while conforming to the basic rules of society,

It is well documented in the mergers and acquisitions literature that acquirers rarely establish a toehold prior to making a control offer for a target. Between 1990 and 2005, SDC recorded toeholds in only 1.21 % of the 3,548 control offers for public companies. The infrequency of toeholds is not suggestive of infrequent inter-corporate investments – over the same period, SDC reported 3,323 partial, or non-control, acquisitions of public companies. In our working sample of 2,981 control offers, close to 8 % were preceded by a partial acquisition in the prior two years. The purpose of this paper is twofold – first, to document the characteristics of partial acquisitions and secondly, to examine the motivation for establishing a position in a merger target while not following through with a control offer. We examine the long-run performance of targets in partial acquisitions prior to the transaction and find that partial acquisitions involving poorly-performing targets are more likely to be followed by control offers. However, in over 85 % of these cases, the acquirer of control is not the same firm as the partial buyer. We find evidence suggesting that the abnormal return at the time of the partial acquisition may be in anticipation of a subsequent control offer. In our sample, financial bidders are the major participants in partial acquisition. 1