Sold Below Value? Why Takeover Offers Can Have Negative Premiums

Utz Weitzel, Gerhard Kling

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Although many studies have acknowledged the existence of negative offer premiums, where the initial bid undercuts the target's pre-announcement market price, this phenomenon has remained unexplained. Negative premiums occur frequently and are no measurement error. We show theoretically and empirically that negative premiums can be rationally explained with ‘hidden earnouts,’ where target shareholders participate in the bidder's share of joint synergies, and with corrections of target overvaluation. We find that target shareholders profit from the consummation of a takeover even if the announced offer has a negative premium.
Original languageEnglish
Pages (from-to)421-450
Number of pages30
JournalFinancial Management
Volume47
Issue number2
Early online date7 Dec 2017
DOIs
Publication statusPublished - 1 Jun 2018

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Premium
Shareholders
Profit
Bid
Preannouncements
Measurement error
Synergy
Market price
Overvaluation

Cite this

Sold Below Value? Why Takeover Offers Can Have Negative Premiums. / Weitzel, Utz; Kling, Gerhard.

In: Financial Management, Vol. 47, No. 2, 01.06.2018, p. 421-450.

Research output: Contribution to journalArticle

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