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Competition, Auctions & Negotiations in REIT Takeovers

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  • J. Mulherin

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  • Kiplan Womack

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Abstract

The lack of hostile takeovers and relatively modest wealth gains associated with REIT mergers motivate two fundamental yet previously unexplored questions: how competitive are REIT takeovers, and how exactly does a REIT sell itself to another firm? This paper examines these questions using hand-collected data from SEC merger filings. Four primary findings emerge from this study. First, REITs most often utilize a sales process resembling an auction, where an average of 19 potential buyers are contacted. Second, REIT mergers are on average just as competitive, or more so, as those in other industries. Third, the market for corporate control for REITs is more active than previously thought. Fourth, failure to account for publicly available signals that a REIT is for sale (which typically occur several months in advance prior to the official public merger announcement) results in omitting approximately one third of the total shareholder wealth effect produced by REIT mergers. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • J. Mulherin & Kiplan Womack, 2015. "Competition, Auctions & Negotiations in REIT Takeovers," The Journal of Real Estate Finance and Economics, Springer, vol. 50(2), pages 151-180, February.
  • Handle: RePEc:kap:jrefec:v:50:y:2015:i:2:p:151-180
    DOI: 10.1007/s11146-013-9447-7
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    File URL: http://hdl.handle.net/10.1007/s11146-013-9447-7
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    References listed on IDEAS

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    1. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-1575, September.
    2. Allen, Paul R. & Sirmans, C. F., 1987. "An analysis of gains to acquiring firm's shareholders : The special case of REITs," Journal of Financial Economics, Elsevier, vol. 18(1), pages 175-184, March.
    3. Schwert, G. William, 1996. "Markup pricing in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 41(2), pages 153-192, June.
    4. Audra L. Boone & J. Harold Mulherin, 2009. "Is There One Best Way to Sell a Company? Auctions Versus Negotiations and Controlled Sales-super-1," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(3), pages 28-37.
    5. Robert Campbell & Chinmoy Ghosh & Milena Petrova & C. Sirmans, 2011. "Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 451-480, May.
    6. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, vol. 82(4), pages 713-719, September.
    7. Mulherin, J. Harold & Boone, Audra L., 2000. "Comparing acquisitions and divestitures," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 117-139, July.
    8. G. William Schwert, 2000. "Hostility in Takeovers: In the Eyes of the Beholder?," Journal of Finance, American Finance Association, vol. 55(6), pages 2599-2640, December.
    9. Willard McIntosh & Dennis T. Officer & Jeffrey A. Born, 1989. "The Wealth Effects of Merger Activities: Further Evidence from Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 4(3), pages 141-156.
    10. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    11. Piet Eichholtz & Nils Kok, 2008. "How Does the Market for Corporate Control Function for Property Companies?," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 141-163, February.
    12. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-441, October.
    13. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, September.
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