"She is Mine": Determinants and Value Effects of Early Announcements in Takeovers

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Some bidders voluntarily announce a merger negotiation before the definitive agreement. We propose an “announce-to-signal” explanation to these early announcements: they allow bidders to signal to target shareholders high synergies so as to overcome negotiation frictions and improve success rates. We show that there exists a separating equilibrium where high-synergy bidders announce early, while low-synergy bidders remain in private negotiations. Consistent with signaling, we show that negotiation frictions predict earlier announcements. Early announced transactions are associated with higher expected synergies, offer premium, completion rates, and public competition. However, bidder announcement returns do not suggest overpayment in these transactions.

Author(s):

Nihat Aktas    
WHU - Otto Beisheim School of Management
Germany

Guosong Xu    
WHU - Otto Beisheim School of Management
Germany

Burcin Yurtoglu    
WHU - Otto Beisheim School of Management
Germany