IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v42y2015icp4-23.html
   My bibliography  Save this article

Bidder contests in international mergers and acquisitions: The impact of toeholds, preemptive bidding, and termination fees

Author

Listed:
  • Bessler, Wolfgang
  • Schneck, Colin
  • Zimmermann, Jan

Abstract

For international mergers and acquisitions we analyze the effectiveness of different bidder strategies, first in preventing bidder competition, and second in increasing the likelihood of success. We provide robust empirical evidence of the effectiveness of toeholds and termination fees in reducing the likelihood of competition and, if a contest occurs, increasing the probability of success, especially after controlling for bidder asymmetries. The effects of termination fees vary over time and legal origin. Overall, there is hardly any evidence that high initial offers can prevent contests. However, competition is preempted in civil law countries with a high initial premium. A higher percentage of cash payment also increases the probability of success in bidder contest. Moreover, latent competition is generally not sufficient to curb the influence of observable bidder competition on target and bidder wealth. Finally, serial acquirers are more likely to prevent bidder contests and experienced and reputably advised bidders are more successful in deal completion. Overall, we offer novel evidence for the success of different bidding strategies in international mergers and acquisitions.

Suggested Citation

  • Bessler, Wolfgang & Schneck, Colin & Zimmermann, Jan, 2015. "Bidder contests in international mergers and acquisitions: The impact of toeholds, preemptive bidding, and termination fees," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 4-23.
    • Handle: RePEc:eee:finana:v:42:y:2015:i:c:p:4-23
    DOI: 10.1016/j.irfa.2015.04.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521915000824
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2015.04.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Boone, Audra L. & Harold Mulherin, J., 2008. "Do auctions induce a winner's curse? New evidence from the corporate takeover market," Journal of Financial Economics, Elsevier, vol. 89(1), pages 1-19, July.
    2. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
    3. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    4. Fidrmuc, Jana P. & Roosenboom, Peter & Paap, Richard & Teunissen, Tim, 2012. "One size does not fit all: Selling firms to private equity versus strategic acquirers," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 828-848.
    5. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    6. G. Alexandridis & D. Petmezas & N.G. Travlos, 2010. "Gains from Mergers and Acquisitions Around the World: New Evidence," Financial Management, Financial Management Association International, vol. 39(4), pages 1671-1695, December.
    7. Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 841-882.
    8. Singh, Rajdeep, 1998. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," The Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 679-704.
    9. Burkart, Mike, 1995. "Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
    10. Nihat Aktas & Eric de Bodt & Richard Roll, 2010. "Negotiations under the threat of an auction," Post-Print hal-02312521, HAL.
    11. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June.
    12. Goldman, Eitan & Qian, Jun, 2005. "Optimal toeholds in takeover contests," Journal of Financial Economics, Elsevier, vol. 77(2), pages 321-346, August.
    13. Jaffe, Jeffrey & Pedersen, David & Voetmann, Torben, 2013. "Skill differences in corporate acquisitions," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 166-181.
    14. Schwert, G. William, 1996. "Markup pricing in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 41(2), pages 153-192, June.
    15. repec:bla:jfinan:v:44:y:1989:i:1:p:41-57 is not listed on IDEAS
    16. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
    17. Arturo Bris & Christos Cabolis, 2008. "The Value of Investor Protection: Firm Evidence from Cross-Border Mergers," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 605-648, April.
    18. I. Serdar Dinc & Isil Erel, 2013. "Economic Nationalism in Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 68(6), pages 2471-2514, December.
    19. Betton, Sandra & Eckbo, B. Espen & Thorburn, Karin S., 2009. "Merger negotiations and the toehold puzzle," Journal of Financial Economics, Elsevier, vol. 91(2), pages 158-178, February.
    20. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2010. "Negotiations under the threat of an auction," Journal of Financial Economics, Elsevier, vol. 98(2), pages 241-255, November.
    21. Sandra Betton & B. Espen Eckbo & Rex Thompson & Karin S. Thorburn, 2014. "Merger Negotiations with Stock Market Feedback," Journal of Finance, American Finance Association, vol. 69(4), pages 1705-1745, August.
    22. G. William Schwert, 2000. "Hostility in Takeovers: In the Eyes of the Beholder?," Journal of Finance, American Finance Association, vol. 55(6), pages 2599-2640, December.
    23. Matthew T. Billett & Yiming Qian, 2008. "Are Overconfident CEOs Born or Made? Evidence of Self-Attribution Bias from Frequent Acquirers," Management Science, INFORMS, vol. 54(6), pages 1037-1051, June.
    24. Dittmar, Amy & Li, Di & Nain, Amrita, 2012. "It Pays to Follow the Leader: Acquiring Targets Picked by Private Equity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(5), pages 901-931, October.
    25. Michael J. Fishman, 1988. "A Theory of Preemptive Takeover Bidding," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 88-101, Spring.
    26. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    27. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    28. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    29. Kale, Jayant R. & Kini, Omesh & Ryan, Harley E., 2003. "Financial Advisors and Shareholder Wealth Gains in Corporate Takeovers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(3), pages 475-501, September.
    30. Audra L. Boone & J. Harold Mulherin, 2007. "Do Termination Provisions Truncate the Takeover Bidding Process?," The Review of Financial Studies, Society for Financial Studies, vol. 20(2), pages 461-489.
    31. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    32. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    33. Paul Povel & Rajdeep Singh, 2006. "Takeover Contests with Asymmetric Bidders," The Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1399-1431.
    34. Ravid, S. Abraham & Spiegel, Matthew, 1999. "Toehold strategies, takeover laws and rival bidders," Journal of Banking & Finance, Elsevier, vol. 23(8), pages 1219-1242, August.
    35. Bris, Arturo, 2002. "Toeholds, takeover premium, and the probability of being acquired," Journal of Corporate Finance, Elsevier, vol. 8(3), pages 227-253, July.
    36. Jeon, Jin Q. & Ligon, James A., 2011. "How much is reasonable? The size of termination fees in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 959-981, September.
    37. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2013. "Learning from repetitive acquisitions: Evidence from the time between deals," Journal of Financial Economics, Elsevier, vol. 108(1), pages 99-117.
    38. Nihat Aktas & Eric de Bodt & Richard Roll, 2009. "Learning, hubris and corporate serial acquisitions," Post-Print hal-02311877, HAL.
    39. Hirshleifer, David, 1989. "Facilitation of Competing Bids and the Price of a Takeover Target," University of California at Los Angeles, Anderson Graduate School of Management qt2496649g, Anderson Graduate School of Management, UCLA.
    40. Tingjun Liu, 2012. "Takeover Bidding with Signaling Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 522-556.
    41. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November.
    42. Berkovitch, Elazar & Narayanan, M P, 1990. "Competition and the Medium of Exchange in Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 153-174.
    43. Dasgupta, Sudipto & Tsui, Kevin, 2003. "A "matching auction" for targets with heterogeneous bidders," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 331-364, October.
    44. Nihat Aktas & Eric de Bodt & Richard Roll, 2011. "Serial acquirer bidding : An empirical test of the learning hypothesis," Post-Print hal-02312633, HAL.
    45. Alexander S. Gorbenko & Andrey Malenko, 2014. "Strategic and Financial Bidders in Takeover Auctions," Journal of Finance, American Finance Association, vol. 69(6), pages 2513-2555, December.
    46. Servaes, Henri & Zenner, Marc, 1996. "The Role of Investment Banks in Acquisitions," The Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 787-815.
    47. Audra L. Boone & J. Harold Mulherin, 2007. "How Are Firms Sold?," Journal of Finance, American Finance Association, vol. 62(2), pages 847-875, April.
    48. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2011. "Serial acquirer bidding: An empirical test of the learning hypothesis," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 18-32, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wolfgang Bessler & Colin Schneck, 2015. "Excess premium offers and bidder success in European takeovers," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 23-62, June.
    2. Russell Pittman, 2017. "The Strange Career Of Independent Voting Trusts In U.S. Rail Mergers," Journal of Competition Law and Economics, Oxford University Press, vol. 13(1), pages 89-102.
    3. Lacerda, José & Pereira, Paulo J. & Rodrigues, Artur, 2021. "Toehold acquisitions as option games," Economics Letters, Elsevier, vol. 209(C).
    4. Demirtaş, Gül, 2017. "Board involvement in the M&A negotiation process," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 27-43.
    5. Chao Fu & Xiuyuan Deng & Hongfei Tang, 2023. "Who cares about corporate fraud? Evidence from cross-border mergers and acquisitions of Chinese companies," Review of Quantitative Finance and Accounting, Springer, vol. 60(2), pages 747-789, February.
    6. Zheng, Weiting & Zheng, Yaqin & Yi, Jingtao & Shaheer, Noman & Li, Sali, 2024. "Context matters: The signaling role of foreign bidders’ reputation in cross-border acquisition contests," Journal of World Business, Elsevier, vol. 59(4).
    7. Perafán-Peña, Héctor Fabio & Gill-de-Albornoz Noguer, Belén & Giner, Begoña, 2024. "Targets’ earnings management and ownership decisions in M&A: Can less be more ?," Finance Research Letters, Elsevier, vol. 62(PA).
    8. Deepak Kumar & Keya Sengupta & Mousumi Bhattacharya, 2023. "M&A Negotiations: Role of Negotiation Process, Ownership and Advisors on Deal Completion," Group Decision and Negotiation, Springer, vol. 32(5), pages 1083-1115, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schneck, Colin & Bessler, Wolfgang & Zimmermann, Jan, 2014. "Bidder Contests in International Mergers and Acquisitions: The Impact of Toeholds, Preemptive Bidding, and Termination Fees," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100493, Verein für Socialpolitik / German Economic Association.
    2. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    3. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    4. Dimopoulos, Theodosios & Sacchetto, Stefano, 2014. "Preemptive bidding, target resistance, and takeover premiums," Journal of Financial Economics, Elsevier, vol. 114(3), pages 444-470.
    5. Hussain, Tanveer & Loureiro, Gilberto, 2023. "Target industry takeover competition and the wealth effects of mergers and acquisitions: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    6. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    7. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2011. "Serial acquirer bidding: An empirical test of the learning hypothesis," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 18-32, February.
    8. Dai, Yun & Gryglewicz, Sebastian & Smit, Han T.J. & De Maeseneire, Wouter, 2013. "Similar bidders in takeover contests," Games and Economic Behavior, Elsevier, vol. 82(C), pages 544-561.
    9. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 203-216.
    10. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
    11. Wolfgang Bessler & Colin Schneck, 2015. "Excess premium offers and bidder success in European takeovers," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 23-62, June.
    12. Weitzel, Utz & Kling, Gerhard, 2012. "Sold below value? Why some targets accept very low and even negative takeover premiums," MPRA Paper 42832, University Library of Munich, Germany.
    13. Xu, Weidong & Gao, Xin & Li, Donghui & Zhuang, Mingming & Yang, Shijie, 2022. "Serial acquirers and stock price crash risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    14. Stephen N. Jurich & M. Mark Walker, 2021. "Deal motivations and bargaining power: do executives show their hand in SEC filings?," SN Business & Economics, Springer, vol. 1(4), pages 1-28, April.
    15. Calcagno, Riccardo & Falconieri, Sonia, 2014. "Competition and dynamics of takeover contests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 36-56.
    16. Boone, Audra L. & Harold Mulherin, J., 2008. "Do auctions induce a winner's curse? New evidence from the corporate takeover market," Journal of Financial Economics, Elsevier, vol. 89(1), pages 1-19, July.
    17. Schlingemann, Frederik & Wu, Hong, 2015. "Determinants and shareholder wealth effects of the sales method in acquisitions," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 469-485.
    18. Povel, Paul & Sertsios, Giorgo, 2014. "Getting to know each other: The role of toeholds in acquisitions," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 201-224.
    19. Al Rahahleh, Naseem & Wei, Peihwang Philip, 2012. "The performance of frequent acquirers: Evidence from emerging markets," Global Finance Journal, Elsevier, vol. 23(1), pages 16-33.
    20. Loyola, Gino, 2012. "Auctions vs. negotiations in takeovers with initial stakes," Finance Research Letters, Elsevier, vol. 9(3), pages 111-120.

    More about this item

    Keywords

    International M&A; Takeover contests; Toeholds; Preemptive bidding; Termination fees;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:42:y:2015:i:c:p:4-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.