| These essays explore how three aspects of the market for public firms in the U.S. affect deals. First, legal restrictions create a material delay between the announcement of a friendly acquisition and its final approval by target shareholders. Second, during the interim period a target's value may change, perhaps dramatically. Finally, although a target can accept new bids, bidders usually cannot back out of the deal.;The first chapter explores acquisitions within a framework representing these deal facets, in particular examining their impact on who bids, and on the optimal reserve price and bustup fee a target should set. Principal new predictions include: (i) first bidders may value the target for more than the reserve price, yet be unwilling to bid; (ii) the likelihood of observing a bid is generally decreasing in the reserve price, the interim uncertainty, and the number of potential competitors; (iii) targets often optimally set reserve prices above the current market price; (iv) optimal reserve prices are decreasing in the interim uncertainty and the number of potential competitors; (v) if the target offers a bustup fee to the first bidder, it increases the optimal reserve price but reduces the target's expected profit.;The second chapter shows how the pre-offer correlation between bidder and target values can drive the method of payment in an acquisition deal, even absent the usual frictions cited in the extent literature. With the interim period, a stock offer reduces the risk of overpaying only if bidder and target values are highly correlated, as the value of the offer moves in conjunction with the value of the target. Key predictions are that: (i) the likelihood of a stock offer increases with bidder-target correlation, (ii) the effect of correlation is stronger in deals with higher target value volatility and for relatively larger targets, (iii) the effect should only be seen in deals subject to a legally mandated interim period, and (iv) if targets cannot observe bidder synergy, the effect is stronger in low-synergy deals. Empirical results consistent with these predictions are observed in a large sample of U.S. deals. |
