The price of corporate acquisition: determinants of cash takeover premia

A sample of cash-only acquisitions of Nasdaq targets during 1973-1999 is examined. It is found that the mean (median) percentage premia declines from 74% (65%) during the 1970s to 47% (42%) in the 1990s. Consistent with recent research on the value reduction associated with diversification, it is ob...

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Bibliographic Details
Published in:Applied economics letters 2004-10, Vol.11 (12), p.735-739
Main Authors: Gondhalekar, Vijay B., Raymond Sant, R., Ferris, Stephen P.
Format: Article
Language:English
Subjects:
Acquisitions
Acquisitions & mergers
Applied economics
Economic analysis
Economic theory
Enterprises
Mergers
Stock exchange
Studies
Take-overs
U.S.A
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Summary:A sample of cash-only acquisitions of Nasdaq targets during 1973-1999 is examined. It is found that the mean (median) percentage premia declines from 74% (65%) during the 1970s to 47% (42%) in the 1990s. Consistent with recent research on the value reduction associated with diversification, it is observed that acquirers generally will not pay higher prices to acquire firms operating in different industries. It is found that over-invested firms pursue acquisitions more aggressively by paying higher premia while under-invested firms pay less, on average. Finally, the evidence suggests that agency rather than synergistic or hubris effects influence the level of merger premia.
ISSN:1350-4851
1466-4291
DOI:10.1080/1350485042000254601