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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.

Suggested Citation

  • Boyan Jovanovic & Serguey Braguinsky, 2002. "Bidder Discounts and Target Premia in Takeovers," NBER Working Papers 9009, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9009
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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