Price movements as indicators of tender offer success

Article Abstract:

An analysis of cash tender offers made from 1976 through 1981 concludes that: (1) the stock price increases or decreases of the targeted corporation reflect the success of the tender offer, (2) stock market indicators become more accurate as the date of the tender offer arrives, especially with regard to price calibration and forecast resolution, and (3) stock market prices appear to be calibrated accurately, with only a few exceptions. When stating that the stock market prices are for the most part well-calibrated, the analysis is demonstrating that target stock prices generated by tender offers generally coincide with the stock price at the sale's conclusion. The tender offers analyzed are limited to those in which there was no competition, in order to preclude the auctioneering price fluctuations attendant on competitive tender offer bidding.

Prices and rates, Stocks, Stock prices

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The intra-industry effects of going-private transactions

Article Abstract:

We demonstrate that bids to take firms private generate significantly positive valuation effects for industry rivals of target firms. These valuation effects cannot reflect either synergy or monopoly since no consolidation of operating firms is involved in such transactions. Participation by buyout specialists in the bid does not significantly affect these gains. Bids by outsiders and bids by incumbent managers generate similar valuation effects for industry rivals. The effect on share prices of industry rivals is inversely related to the capitalized values of rival firms relative to the target firm. We also report valuation effects for target firms. (Reprinted by permission of the publisher.)

Analysis, Management buyouts, Going private (Securities), Leveraged buyouts

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Moral hazard and adverse selection: the question of financial structure

Article Abstract:

When an entrepreneur offers securities for sale in order to obtain the requisite financing for his corporation, the offering is accompanied by problems of 'moral hazard' due to the investment decision's occurring after the financing, and problems of 'adverse selection' related to the unknown ability of the entrepreneur to generate value through his efforts in business. These problems are analyzed in cases in which the entrepreneurial financing is composed of debt and equity financing. The analysis demonstrates the inseparability of financing and investment, the underinvestment phenomenon for better companies, and the resolution of these difficulties through the use of both equity and debt.

Finance, Corporations, Corporate finance, Entrepreneurship

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