Distinguishing a purchase from a pooling through the use of hostile and friendly tender offers

Abstract

Typescript (photocopy).A study was undertaken to determine if the effect of hostile and friendly tender offers had greater importance in the market for business combinations than the type of consideration involved in the business combination. Hostile and friendly tender offers were divided into the categories of cash and stock tender offers. It was argued that if the market reacted the same way to hostile tender offers regardless of the type of consideration involved, then the type of consideration involved should not effect the subsequent accounting for the business combination. In accordance with the management control hypothesis, it was expected that the market returns would be greater for hostile tender offers than for friendly tender offers in both the stock and cash groups. The results indicated that while the market reacted the same way towards hostile tender offers in both the cash and stock groups, the market did not react in the direction hypothesized by the management control hypothesis. The uncertain results suggest that further research is needed in this area