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Excess premium offers and bidder success in European takeovers

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Abstract

For European takeovers, we study whether offering an “excess” premium has any effect on deal completion. We define “excess” premium as being higher than the “expected” premium derived from recent deals with comparable characteristics, controlling for industry, country, size, period, and other deal, bidder and target characteristics. We identify factors explaining why firms offer “excess” premiums and examine whether “excess” premiums increase the likelihood of deal completion. Our results suggest that merger and acquisition targets experience higher announcement returns in “excess” premium offers and successful bidders have a superior long-run performance regardless of paying an “excess” premium, whereas unsuccessful bidders’ performance is negative. The probability of offering an “excess” premium increases with bidder size but decreases with target size and depends on deal characteristics. Notably, deal completion is more likely when offering an “excess” premium.

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Notes

  1. Another approach is to estimate the expected premium using a rolling period. However, for our sample we do not employ this method because in some years we do not have sufficient observations for the rolling OLS approach.

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Authors and Affiliations

  1. Center for Finance and Banking, Justus-Liebig-University Giessen, Licher Strasse 74, 35394, Giessen, Germany

    Wolfgang Bessler & Colin Schneck

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  1. Wolfgang Bessler
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  2. Colin Schneck
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Correspondence to Wolfgang Bessler.

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Bessler, W., Schneck, C. Excess premium offers and bidder success in European takeovers. Eurasian Econ Rev 5, 23–62 (2015). https://doi.org/10.1007/s40822-015-0017-6

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  • DOI: https://doi.org/10.1007/s40822-015-0017-6

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