Estimating Private Benefits of Control from Stock Price Changes Around the Announcement of Tender Offer Bid (TOB)

This research analyzes 262 cases of tender offer bid (TOB) in which the acquired companies were expected to remain listed after the deals, from among TOB deals conducted between 1990 and 2011, and estimates the value of private benefits of control in Japan based on the premiums paid relative to the post-deal stock prices. The research finds that the estimated value of private benefits gained through TOB deals in Japan has been positive (the average value was 12.7% and the median value was 7.7%, with both figures being statistically significant at a 1% level) since the prohibition of a partial tender offer beyond 66.7% of outstanding shares was introduced in December 2006, although the average private benefits during the whole of the 1990-2011 period were not statistically significant. Regarding factors that affect the estimated value of private benefits gained through TOB deals, the research finds the following: (1) The acquiring company fs high share ownership ratio before the TOB deal has positive effects, (2) A high share ownership ratio resulting from the TOB deal has negative effects, (3) The presence of a block holder has negative effects, (4) When the acquired company is reporting financial losses, it has negative effects, (5) There is a negative correlation between the cash flow improvement effect achieved under the management of the acquiring company (new management team) and the estimated value of private benefits. It was also confirmed (6) that when the stock price immediately before the announcement of the TOB deal was lower than the peak price during the one-year period prior to the announcement, the estimated value of private benefits tended to be high and (7) that the value of private benefits has been relatively high since the prohibition of a partial tender offer beyond 66.7% in December 2006.