How Do Acquirers Choose between Mergers and Tender Offers?

David Offenberg, Christo A. Pirinsky
2012 Social Science Research Network  
We present a theoretical framework and supporting empirical evidence for the choice of acquisition method in takeovers. In our model, bidders have a preference for speedy execution in order to minimize competition for the target. Due to existing regulations, tender offers provide substantially lower completion times than mergers and, as a result, are the acquisition method of choice. However, a tender offer signals to the target good market opportunities for its shares which raises its
more » ... raises its reservation price. In equilibrium, bidders trade-off speed and costs: tenders are faster but have higher premiums. We show that deals in more competitive environments and deals with lesser external impediments on execution are more likely to be structured as tender offers. Furthermore, the rivals of the bidding firm exhibit significantly lower announcement returns in tender offers than in mergers. JEL classification: G34, J50
doi:10.2139/ssrn.2138476 fatcat:sqxvcaygmffz5bq5de673xzjci