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Wealth Reduction in White Knight Bids

Author

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  • Ajeyo Banerjee
  • James E. Owers

Abstract

The paper investigates the value changes experienced by white knights when they are involved in corporate control contests. Close to 80% of the white knights incur a negative abnormal return for the two-day window ending on the date of their bid. The losses persist for longer windows on either side of the event. We examine a set of matched-trios where all parties to the control contest are exchange-listed, and observe that from a welfare economics perspective, these contests do not lead to Pareto superior states, but meet the weaker efficiency criterion of the Hicks-Kaldor compensation principle.

Suggested Citation

  • Ajeyo Banerjee & James E. Owers, 1992. "Wealth Reduction in White Knight Bids," Financial Management, Financial Management Association, vol. 21(3), Fall.
    • Handle: RePEc:fma:fmanag:banerjee92
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    Citations

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    Cited by:

    1. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc.
    2. Anderson, Christopher W. & Huang, Jian & Torna, Gökhan, 2017. "Can investors anticipate post-IPO mergers and acquisitions?," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 496-521.
    3. Pearce II, John A. & Robinson, Richard Jr., 2004. "Hostile takeover defenses that maximize shareholder wealth," Business Horizons, Elsevier, vol. 47(5), pages 15-24.
    4. Blumberg, Aryeh & Owers, James E., 1996. "The convergence of foreign direct investment and restructuring: Evidence from cross-border divestitures," Global Finance Journal, Elsevier, vol. 7(1), pages 67-87.
    5. Abdullah Mamun & Dev Mishra, 2012. "Industry Merger Intensity and Cost of Capital," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 469-490, December.
    6. Stefan Eichler & Dominik Maltritz, 2010. "On the look-out for a white knight: options-based calculation of probability and expected value of increased bids in hostile takeover battles," Applied Economics Letters, Taylor & Francis Journals, vol. 17(11), pages 1033-1036.
    7. Riccardo Calcagno & Sonia Falconieri, 2008. "White Knights and the Corporate Governance of Hostile Takeovers," Tinbergen Institute Discussion Papers 08-118/2, Tinbergen Institute.
    8. Stefan Eichler & Dominik Maltritz, 2013. "An options-based approach to forecast competing bids: evidence for Canadian takeover battles," Applied Economics, Taylor & Francis Journals, vol. 45(34), pages 4805-4819, December.
    9. Banerjee, Ajeyo & Owers, James E., 1996. "The impact of the nature and sequence of multiple bids in corporate control contests," Journal of Corporate Finance, Elsevier, vol. 3(1), pages 23-43, December.
    10. Hopkins, H. Donald & Chaganti, Raj & Kotabe, Masaaki & Co-editors, 1999. "Cross-border mergers and acquisitions: Global and regional perspectives," Journal of International Management, Elsevier, vol. 5(3), pages 207-239.
    11. Furfine, Craig H. & Rosen, Richard J., 2011. "Mergers increase default risk," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 832-849, September.

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