NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cash is King - Revaluation of Targets after Merger Bids

Ulrike Malmendier, Marcus Matthias Opp, Farzad Saidi

NBER Working Paper No. 18211
Issued in July 2012
NBER Program(s):   CF

We provide evidence that a significant fraction of the returns to merger announcements reflects target revaluation rather than the causal effect of the merger. In a sample of unsuccessful merger bids from 1980 to 2008, targets of cash offers are revalued by +15% after deal failure, whereas stock targets revert to their pre-announcement levels. This result holds for the subsample where deal failure is exogenous to the target's stand-alone value. We also show that cash bidders revert to their pre-announcement levels, while stock bidders fall below. The results suggest that cash bids signal target undervaluation and stock bids indicate acquirer overvaluation.

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