2 research outputs found
Irrevocable Commitments and Tender Offer Outcomes
Irrevocable commitments (ICs) are undertakings by targetâfirm blockholders to accept an upcoming takeover bid before its announcement. Using a novel manuallyâcollected dataset, we develop three new hypotheses and explore one existing hypothesis to explain the use of ICs: (1) tradeâoff between speed and price; (2) tradeâoff between completion probability and price; (3) differences in bargaining power, and (4) blockholder certification. Transactions with more than 20% of shares irrevocably committed have a 7â16% higher probability of tender offer completion and 8â10 days shorter bid duration. A transaction with an averageâsized irrevocable commitment is associated with a 2.9 percentage points lower fourâweek bid premium than a transaction with no irrevocable commitment. Overall, the results appear most consistent with the hypothesis on completion probability versus price. The results also offer partial evidence in favor of the certification hypothesis.Peer reviewe