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The Role of Medium of Exchange in Merger Offers: Examination of Terminated Merger Proposals

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  • Michael J. Sullivan
  • Marlin R. H. Jensen
  • Carl D. Hudson

Abstract

In this study, we examine the relation between the medium of exchange (cash or stock) and valuation effects associated with terminated merger proposals. We find significantly higher returns for target shareholders after termination of cash offers than after termination of stock offers. This difference persists even when a subsequent merger bid does not follow and regardless of the following factors: the party deciding to terminate the offer, the presence of an acquisition program, prior foothold position, relative size of the acquisition, or the presence of competing offers. We conclude that target firm shares are re-valued according to private information signaled by the offer medium that pertains to the target firm's stand-alone value or its unique synergy potential. Bidding firm shareholders experience insignificant returns, and these returns are not affected by any of the factors analyzed.

Suggested Citation

  • Michael J. Sullivan & Marlin R. H. Jensen & Carl D. Hudson, 1994. "The Role of Medium of Exchange in Merger Offers: Examination of Terminated Merger Proposals," Financial Management, Financial Management Association, vol. 23(3), Fall.
    • Handle: RePEc:fma:fmanag:sullivan04
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    Cited by:

    1. Damilola Oyetade & Farai Kwenda & Ralitza Dobreva, 2017. "Factors affecting the Long-Term Post-Acquisition Performance of BRICS Firms Engaging in Cross-Border Mergers and Acquisitions," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(2), pages 220-233, April.
    2. Malmendier, Ulrike & Opp, Marcus M. & Saidi, Farzad, 2016. "Target revaluation after failed takeover attempts: Cash versus stock," Journal of Financial Economics, Elsevier, vol. 119(1), pages 92-106.
    3. Karyn L. Neuhauser & Wallace N. Davidson & John L. Glascock, 2011. "An analysis of failed takeover attempts and merger cancellations," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 7(4), pages 347-376, September.
    4. Donker, H.A., 2001. "Takeovers : An empirical study of ownership structure and the wealth to shareholders in Dutch takeovers," Other publications TiSEM 480af60e-4b9b-49f2-ab6c-d, Tilburg University, School of Economics and Management.
    5. Simonyan, Karen, 2014. "What determines takeover premia: An empirical analysis," Journal of Economics and Business, Elsevier, vol. 75(C), pages 93-125.
    6. Baixiao Liu, 2016. "The Disciplinary Role Of Failed Takeover Attempts," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(1), pages 63-85, March.

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