Does patience pay? : empirical testing of the option to delay accepting a tender offer in the U.S. banking sector

  • We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has in waiting for a higher bid instead of accepting an initial tender offer. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of almost 12.5% for a sample of 424 mergers and acquisitions between 1997 and 2005 in the U.S. banking industry. Regression analysis reveals that the option price is related to both the price to book market and the free cash flow of target banks. We conclude that it is certainly in the shareholders best interest if subsequent offers are awaited. JEL Classification: G34, C10

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Author:Rachel A. Campbell, Roman KräusslORCiDGND
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2006,32
Series (Serial Number):CFS working paper series (2006, 32)
Document Type:Working Paper
Year of Completion:2006
Year of first Publication:2006
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/02/23
Tag:Mergers and Acquisitions; Option-pricing Model; U.S. Banking Industry
GND Keyword:USA; Bank; Übernahmeangebot; Geduld
Issue:Preliminary Version, September 26, 2006
Page Number:36
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht