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Bidder Discounts and Target Premia in Takeovers

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  • Boyan Jovanovic
  • Serguey Braguinsky

Abstract

When a takeover is announced, the sum of the stock-market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet, upon news of a takeover, a target's price rises, the bidder's price falls, and, most of the time the joint value of the target and acquirer also falls.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9009.

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Date of creation: Jun 2002
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Publication status: published as Jovanovic, Boyan and Serguey Braguinsky. "Bidder Discounts And Target Premia In Takeovers," American Economic Review, 2004, v94(1,Mar), 46-56.
Handle: RePEc:nbr:nberwo:9009

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