Why Do Private Acquirers Pay so Little Compared to Public Acquirers?

Using the longest event window, we find that public target shareholders receive a 63% (14%) higher premium when the acquirer is a public firm rather than a private equity firm (private operating firm). The premium difference holds with the usual controls for deal and target characteristics, and it is highest (lowest) when acquisitions by private bidders are compared to acquisitions by public companies with low (high) managerial ownership. Further, the premium paid by public bidders (not private bidders) increases with target managerial and institutional ownership.

[1]  J. Stein,et al.  A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets , 1997 .

[2]  M. C. Jensen,et al.  Eclipse of the Public Corporation , 1999 .

[3]  S. P. Kothari,et al.  Econometrics of Event Studies , 2007 .

[4]  Toni M. Whited,et al.  Investment‐Based Expected Stock Returns , 2009, Journal of Political Economy.

[5]  Shorey Peterson,et al.  The Modern Corporation and Private Property. , 1933 .

[6]  J. Geanakoplos,et al.  Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models , 2007 .

[7]  Steven N. Kaplan,et al.  The effects of management buyouts on operating performance and value , 1989 .

[8]  Yi Zhang,et al.  Information Uncertainty and Expected Returns , 2004 .

[9]  Terence Lim,et al.  Rationality and Analysts' Forecast Bias , 2001 .

[10]  E. Fama,et al.  Common risk factors in the returns on stocks and bonds , 1993 .

[11]  Narasimhan Jegadeesh,et al.  Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency , 1993 .

[12]  Jennifer Conrad,et al.  Profitability of Momentum Strategies: An Evaluation of Alternative Explanations , 2001 .

[13]  E. Altman,et al.  Handbook of corporate finance , 1986 .

[14]  René M. Stulz,et al.  Managerial Performance, Tobin's Q, and the Gains from Successful Tender Offers , 1989 .

[15]  E. Fama,et al.  Size and Book-to-Market Factors in Earnings and Returns , 1995 .

[16]  Micah S. Officer Termination Fees in Mergers and Acquisitions , 2003 .

[17]  G. William Schwert,et al.  Markup Pricing in Mergers and Acquisitions , 1996 .

[18]  Kent D. Daniel,et al.  Chapter 13. Investor Psychology and Security Market Under- and Overreaction , 2005 .

[19]  Timothy C. Johnson Rational Momentum Effects , 2001 .

[20]  W. Godwin Article in Press , 2000 .

[21]  Y. Amihud,et al.  Illiquidity and Stock Returns: Cross-Section and Time-Series Effects , 2000 .

[22]  Frank Zhang,et al.  Information Uncertainty and Stock Returns , 2004 .

[23]  René M. Stulz,et al.  Managerial control of voting rights: Financing policies and the market for corporate control , 1988 .

[24]  L. Bebchuk,et al.  Firm Expansion and CEO Pay , 2005 .

[25]  Mark Grinblatt,et al.  Do Industries Explain Momentum , 1999 .

[26]  John H. Cochrane,et al.  A Cross-Sectional Test of an Investment-Based Asset Pricing Model , 1996, Journal of Political Economy.

[27]  Terence Lim,et al.  Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies , 1998 .

[28]  A. Mackinlay,et al.  The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality? , 1998 .

[29]  M. C. Jensen,et al.  Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers , 1999 .

[30]  René M. Stulz,et al.  Firm size and the gains from acquisitions , 2004 .

[31]  B. Eckbo,et al.  Toeholds, Bid Jumps, and Expected Payoffs in Takeovers , 2000 .

[32]  J. Cochrane Production‐Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations , 1991 .

[33]  Jerold B. Warner,et al.  Using daily stock returns: The case of event studies , 1985 .

[34]  Jarrad Harford,et al.  Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOS , 2005 .

[35]  Yen-Sheng Huang,et al.  Target Abnormal Returns Associated with Acquisition Announcements: Payment, Acquisition Form, and Managerial Resistance , 1987 .

[36]  Kai Li,et al.  Conflicts of Interests Among Shareholders: The Case of Corporate Acquisitions , 2007 .

[37]  J. Lewellen,et al.  Momentum and Autocorrelation in Stock Returns , 2002 .

[38]  Timothy R. Burch Locking Out Rival Bidders: The Use of Lockup Options in Corporate Mergers , 2001 .

[39]  H. DeAngelo,et al.  Going Private: Minority Freezeouts and Stockholder Wealth , 1984, The Journal of Law and Economics.

[40]  L. Hansen Large Sample Properties of Generalized Method of Moments Estimators , 1982 .

[41]  Larry E. Toothaker,et al.  Multiple Regression: Testing and Interpreting Interactions , 1991 .

[42]  Annette B. Poulsen,et al.  Free Cash Flow and Stockholder Gains in Going Private Transactions , 1989 .

[43]  Susan M. Mangiero International Momentum Strategies , 1998 .

[44]  R. Green,et al.  Optimal Investment, Growth Options, and Security Returns , 1998 .

[45]  Jacob S. Sagi,et al.  Firm-specific attributes and the cross-section of momentum , 2007 .

[46]  Stephen A. Ross,et al.  A Test of the Efficiency of a Given Portfolio , 1989 .

[47]  D. Yermack,et al.  What S in it for Me? Ceos Whose Firms are Acquired , 2001 .

[48]  Charles M. C. Lee,et al.  Price Momentum and Trading Volume , 1998 .

[49]  René M. Stulz,et al.  Divestitures and the liquidity of the market for corporate assets , 2002 .

[50]  Mengxin Zhao,et al.  CEO Turnover after Acquisitions: Are Bad Bidders Fired? , 2006 .