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Crossing takeover premiums and mix of payment: An empirical test of contractual setting in M&A transactions

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  • Hubert De La Bruslerie

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)

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    Abstract

    The analyses of the tender offer premiums and of the means of payment should not be performed separately. In the empirical literature, these two variables are often considered independently, although they may have an endogenous relationship in a contractual setting. Using a sample of European M&As over the 2000-2010 decade, we show that these two variables are jointly set in a contractual empirical approach. The relationship between the percentage of cash and the offer premium is positive: higher premiums yield payments with more cash. We highlight that the payment choice is not a continuum between full cash and full share payments. Two different regimes of payment in M&A transactions are empirically characterized. We analyze the major determinants of M&A terms when the offer premium and the means of payment are jointly set. The underlying rationale of an asymmetry of information and a risk-sharing calculus is found to be significant in the setting of the agreement.

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    File URL: http://halshs.archives-ouvertes.fr/docs/00/93/75/50/PDF/Crossing_8_.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00937550.

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    Date of creation: 2013
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    Publication status: Published, Journal of Banking and Finance, 2013, 37, 6, 2106-2123
    Handle: RePEc:hal:journl:halshs-00937550

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00937550
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    Keywords: M&A; takeover premium; means of payment; contract setting;

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    1. Lucian Arye Bebchuk, 1994. "Efficient and Inefficient Sales of Corporate Control," NBER Working Papers 4788, National Bureau of Economic Research, Inc.
    2. Belot, François, 2011. "Target shareholder agreements, takeover premiums, and acquisition likelihood," Economics Papers from University Paris Dauphine 123456789/8919, Paris Dauphine University.
    3. Martin, Kenneth J, 1996. " The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership," Journal of Finance, American Finance Association, vol. 51(4), pages 1227-46, September.
    4. Goergen, M. & Renneboog, L.D.R., 2002. "Shareholder Wealth Effects of European Domestic and Cross-Border Takeover Bids," Discussion Paper 2002-50, Tilburg University, Center for Economic Research.
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