NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mark-Up Pricing in Mergers and Acquisitions

G. William Schwert

NBER Working Paper No. 4863 (Also Reprint No. r2071)
Issued in September 1994
NBER Program(s):   AP

This paper studies the premiums paid in successful tender offers and mergers involving NYSE and Amex-listed target firms from 1975-91 in relation to pre-announcement stock price runups. It has been conventional to measure corporate control premiums including the price runups that occur before the initial formal bid. There has been little evidence on the relation between the pre-bid runup and the post-announcement premium (the premium paid to target stockholders measured from the date of the first bid). Under what circumstances are runups associated with larger total premiums? The evidence in this paper shows that in most cases, the pre-bid runup and the post- announcement premium are uncorrelated (i.e. little or no substitution between the runup and the post-announcement premium), so the runup is an added cost to the bidder. This has important implications for assessing the costs of illegal insider trading based on private information about a potential bid.

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Document Object Identifier (DOI): 10.3386/w4863

Published: Journal of Financial Economics, vol. 41, no. 2, pp. 153-192, June 1992.

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