(The) premiums and postmerger performance of bidders in cash tender offers

Abstract

M&A has been spotlighted as a strategy for the survival of a company. Among various techniques of an M&A, cash tender offers are only considered for research. The main fields for this study include premiums and long-term performance of bidders. The premiums measure the difference between the bid price and the pre-announcement share price, expressed as a percentage of the pre-announcement share price. To evaluate the long-term performance of bidders, this paper uses a matching firm benchmark and buy-and-hold returns. Without considering synergistic effects, Average control premiums provide no statistical difference between successful bidders and unsuccessful bidders. This implies that higher premiums do not guarantee the success of a takeover. However, the performance of bidders in mergers and tender offers is very controversial, representing that the test results of each researcher are different because of slightly different approaches. This paper shows that bidders in tender offers underperform in the 5 years after the acquisition. But negative abnormal returns begin to considerably decrease 3 years after the completion of the acquisition.