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Essays on takeover defenses and cancellations

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Date Issued:
2006
Summary:
This dissertation analyzes the impact of takeover defenses and cancellations in three essays: (1) The Impact of the Strength of Targets' Takeover Defense Mechanisms on Acquiring Firms; (2) The Impact of the Announcement of Shareholder-Friendly Poison Pill Provisions on Shareholder Wealth; and (3) The Relation between Short Interest Positions and Acquisition Withdrawal Announcements. The first essay examines the impact of the strength of target firms' takeover defenses on acquiring firms' probability of successfully completing takeover deals, acquiring firms' takeover wealth effects, and their long-term performance. The evidence indicates that acquirers are more likely to complete takeovers if targets have weaker defenses. Additionally, acquisition announcement cumulative abnormal returns are lower for acquirers bidding on targets with stronger defenses. However, acquiring firms underperform in the long-run, which has limited relation with targets' takeover defense strengths. The second essay examines the market's reaction to announcements of the adoption of shareholder-friendly poison pills. The market's reaction is generally favorable to poison pill announcements. Cumulative abnormal returns surrounding friendly poison pill adoptions are positive and statistically significant. Additionally, adoptions of poison pills with sunset and TIDE provisions are positively and significantly related to poison pill announcement wealth effects. However, dead hand and fiduciary out provisions have significant inverse relation with poison pill announcement cumulative abnormal returns. Poison pills with chewable, no hand, and adverse persons clauses do not significantly explain cumulative abnormal returns. The cancellation study analyzes abnormal short selling interests in target firms in the month prior to the announcement of a cancelled takeover bid. Average short selling levels are 4 or 5 times higher than normal short selling levels in the month prior to the announcement of takeover bid cancellation, and are negatively related to announcement wealth effects. These initial findings imply that short sellers may be able to anticipate the negative wealth effects associated with deal failure, and hence increase short interests to benefit from target's (albeit brief) decline in value. However, further analyses point to short sellers using market-to-fundamentals strategies, and imply that increased abnormal short selling in the month prior to the announcement of cancelled takeover bids may be coincidental.
Title: Essays on takeover defenses and cancellations.
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Name(s): Glegg, Charmaine A.
Florida Atlantic University, Degree grantor
Madura, Jeff, Thesis advisor
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Issued: 2006
Publisher: Florida Atlantic University
Place of Publication: Boca Raton, Fla.
Physical Form: application/pdf
Extent: 209 p.
Language(s): English
Summary: This dissertation analyzes the impact of takeover defenses and cancellations in three essays: (1) The Impact of the Strength of Targets' Takeover Defense Mechanisms on Acquiring Firms; (2) The Impact of the Announcement of Shareholder-Friendly Poison Pill Provisions on Shareholder Wealth; and (3) The Relation between Short Interest Positions and Acquisition Withdrawal Announcements. The first essay examines the impact of the strength of target firms' takeover defenses on acquiring firms' probability of successfully completing takeover deals, acquiring firms' takeover wealth effects, and their long-term performance. The evidence indicates that acquirers are more likely to complete takeovers if targets have weaker defenses. Additionally, acquisition announcement cumulative abnormal returns are lower for acquirers bidding on targets with stronger defenses. However, acquiring firms underperform in the long-run, which has limited relation with targets' takeover defense strengths. The second essay examines the market's reaction to announcements of the adoption of shareholder-friendly poison pills. The market's reaction is generally favorable to poison pill announcements. Cumulative abnormal returns surrounding friendly poison pill adoptions are positive and statistically significant. Additionally, adoptions of poison pills with sunset and TIDE provisions are positively and significantly related to poison pill announcement wealth effects. However, dead hand and fiduciary out provisions have significant inverse relation with poison pill announcement cumulative abnormal returns. Poison pills with chewable, no hand, and adverse persons clauses do not significantly explain cumulative abnormal returns. The cancellation study analyzes abnormal short selling interests in target firms in the month prior to the announcement of a cancelled takeover bid. Average short selling levels are 4 or 5 times higher than normal short selling levels in the month prior to the announcement of takeover bid cancellation, and are negatively related to announcement wealth effects. These initial findings imply that short sellers may be able to anticipate the negative wealth effects associated with deal failure, and hence increase short interests to benefit from target's (albeit brief) decline in value. However, further analyses point to short sellers using market-to-fundamentals strategies, and imply that increased abnormal short selling in the month prior to the announcement of cancelled takeover bids may be coincidental.
Identifier: 9780542759499 (isbn), 12222 (digitool), FADT12222 (IID), fau:9129 (fedora)
Collection: FAU Electronic Theses and Dissertations Collection
Note(s): College of Business
Thesis (Ph.D.)--Florida Atlantic University, 2006.
Subject(s): Consolidation and merger of corporations--United States--Prevention
Corporate governance--United States
Tender offers (Securities)--United States
Actions and defenses--United States
Held by: Florida Atlantic University Libraries
Persistent Link to This Record: http://purl.flvc.org/fcla/dt/12222
Sublocation: Florida Atlantic University Libraries
Use and Reproduction: Copyright © is held by the author, with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
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Host Institution: FAU
Is Part of Series: Florida Atlantic University Digital Library Collections.