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The Effect of Prohibiting Deal Protection in Mergers and Acquisitions: Evidence from the United Kingdom

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  • Fernán Restrepo
  • Guhan Subramanian

Abstract

Since 2011, the United Kingdom has prohibited all deal protections--including termination fees--in mergers and acquisitions (M&A) deals. We examine the effect of this regulatory change on deal volumes, the incidence of competing offers, deal-jumping rates, deal premiums, and completion rates in the United Kingdom relative to the other European Group of 10 (G-10) countries. We find that M&A deal volumes in the United Kingdom declined significantly in the aftermath of the 2011 reform (in absolute terms and relative to deal volumes in other European G-10 countries). We find no countervailing benefits to targets' shareholders in the form of higher deal premiums or more competing bids. Completion rates and deal-jumping rates also remained unchanged. Our results suggest that deal protections provide an important social welfare benefit by facilitating the initiation of M&A deals.

Suggested Citation

  • Fernán Restrepo & Guhan Subramanian, 2017. "The Effect of Prohibiting Deal Protection in Mergers and Acquisitions: Evidence from the United Kingdom," Journal of Law and Economics, University of Chicago Press, vol. 60(1), pages 75-113.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/692585
    DOI: 10.1086/692585
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    Cited by:

    1. Kumar, Deepak & Sengupta, Keya & Bhattacharya, Mousumi, 2023. "Macroeconomic influences on M&A deal outcomes: An analysis of domestic and cross-border M&As in developed and emerging economies," Journal of Business Research, Elsevier, vol. 161(C).

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