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Excess premium offers and bidder success in European takeovers

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  • Wolfgang Bessler
  • Colin Schneck

Abstract

For European takeovers, we study whether offering an “excess” premium has any effect on deal completion. We define “excess” premium as being higher than the “expected” premium derived from recent deals with comparable characteristics, controlling for industry, country, size, period, and other deal, bidder and target characteristics. We identify factors explaining why firms offer “excess” premiums and examine whether “excess” premiums increase the likelihood of deal completion. Our results suggest that merger and acquisition targets experience higher announcement returns in “excess” premium offers and successful bidders have a superior long-run performance regardless of paying an “excess” premium, whereas unsuccessful bidders’ performance is negative. The probability of offering an “excess” premium increases with bidder size but decreases with target size and depends on deal characteristics. Notably, deal completion is more likely when offering an “excess” premium. Copyright Eurasia Business and Economics Society 2015

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  • 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.
    • Handle: RePEc:spr:eurase:v:5:y:2015:i:1:p:23-62
    DOI: 10.1007/s40822-015-0017-6
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    More about this item

    Keywords

    Mergers and acquisitions; Excess takeover premium; Deal completion; Bidder competition; Event study; Long-run performance; G34; G41;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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