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

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Author Info
Bargeron, Leonce (U Pittsburgh)
Schlingemann, Frederick
Stulz, Rene (Ohio State U)
Zutter, Chad (U Pittsburgh)
Abstract

We find that the announcement gain to target shareholders from acquisitions is significantly lower if a private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains and that managers of firms with diffuse ownership may pay too much for acquisitions.

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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2007-8.

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Date of creation: May 2007
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Handle: RePEc:ecl:ohidic:2007-8

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G3 - Financial Economics - - Corporate Finance and Governance

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March. [Downloadable!] (restricted)
  2. Kenneth M. Lehn & Mengxin Zhao, 2006. "CEO Turnover after Acquisitions: Are Bad Bidders Fired?," Journal of Finance, American Finance Association, vol. 61(4), pages 1759-1811, 08. [Downloadable!] (restricted)
  3. Jay C. Hartzell, 2004. "What's In It for Me? CEOs Whose Firms Are Acquired," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(1), pages 37-61. [Downloadable!] (restricted)
  4. Schlingemann, Frederik P. & Stulz, Rene M. & Walkling, Ralph A., 2002. "Divestitures and the liquidity of the market for corporate assets," Journal of Financial Economics, Elsevier, vol. 64(1), pages 117-144, April. [Downloadable!] (restricted)
  5. Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(4), pages 841-82.
  6. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January. [Downloadable!] (restricted)
  7. Schwert, G. William, 1996. "Markup pricing in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 41(2), pages 153-192, June. [Downloadable!] (restricted)
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  8. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. DeAngelo, Harry & DeAngelo, Linda & Rice, Edward M, 1984. "Going Private: Minority Freezeouts and Stockholder Wealth," Journal of Law & Economics, University of Chicago Press, vol. 27(2), pages 367-401, October.
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  12. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-87, July. [Downloadable!] (restricted)
  13. Burch, Timothy R., 2001. "Locking out rival bidders: The use of lockup options in corporate mergers," Journal of Financial Economics, Elsevier, vol. 60(1), pages 103-141, April. [Downloadable!] (restricted)
  14. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September. [Downloadable!] (restricted)
  15. Jarrad Harford & Kai Li, 2007. "Decoupling CEO Wealth and Firm Performance: The Case of Acquiring CEOs," Journal of Finance, American Finance Association, vol. 62(2), pages 917-949, 04. [Downloadable!] (restricted)
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  1. Phillip Leslie & Paul Oyer, 2008. "Managerial Incentives and Value Creation: Evidence from Private Equity," NBER Working Papers 14331, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Steven N. Kaplan & Per Strömberg, 2008. "Leveraged Buyouts and Private Equity," NBER Working Papers 14207, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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