1 Introduction
2 Hypotheses development
2.1 The relation between deal announcement returns and withdrawal returns
2.2 The net wealth effect of deal announcements and withdrawals for target firms
2.3 The acquirer withdrawal return and the acquirer termination fee provision
2.4 The acquirer withdrawal return and the target termination fee provision
3 Data and method
3.1 Data
Request | Criteria | Number of obs. |
---|---|---|
Panel A. Sample screening of withdrawal M&As from SDC (via Thomson one) | ||
Acquirer nation | United States of America | 320,647 |
Target nation | United States of America | 273,136 |
Acquirer public status | Public | 135,206 |
Target public status | Public | 40,282 |
Deal type | Disclosed or undisclosed value M&A | 10,896 |
Deal status | Withdrawn | 1844 |
Date withdrawn | 01/01/1992 to 12/31/2015 | 1126 |
Deal value | Higher than $1 million | 932 |
Database | Requirements | No. of obs. after merging/matching |
---|---|---|
Panel B. Merging/matching SDC data to data from other databases
| ||
CRSP/compustat | Sufficient stock price data/financial data are available in CRSP/Compustat | 534 |
Execucomp | Inside ownership and stock option data of acquirers’ CEOs are available | 291 |
Final sample | 291 |
Year | Ann. | Withdraw. | Withdraw./Ann. (%) | % of the sample |
---|---|---|---|---|
1977 | 1 | 0 | 0.00 | |
1978 | 17 | 0 | 0.00 | |
1979 | 12 | 6 | 50.00 | |
1980 | 17 | 4 | 23.53 | |
1981 | 115 | 5 | 4.35 | |
1982 | 121 | 26 | 21.49 | |
1983 | 128 | 32 | 25.00 | |
1984 | 231 | 32 | 13.85 | |
1985 | 226 | 91 | 40.27 | |
1986 | 223 | 46 | 20.63 | |
1987 | 235 | 60 | 25.53 | |
1988 | 253 | 73 | 28.85 | |
1989 | 243 | 71 | 29.22 | |
1990 | 159 | 49 | 30.82 | |
1991 | 175 | 40 | 22.86 | |
1992 | 180 | 36 | 20.00 | 3.86 |
1993 | 246 | 42 | 17.07 | 4.51 |
1994 | 370 | 52 | 14.05 | 5.58 |
1995 | 415 | 76 | 18.31 | 8.15 |
1996 | 440 | 60 | 13.64 | 6.44 |
1997 | 539 | 67 | 12.43 | 7.19 |
1998 | 574 | 75 | 13.07 | 8.05 |
1999 | 542 | 73 | 13.47 | 7.83 |
2000 | 482 | 82 | 17.01 | 8.80 |
2001 | 350 | 56 | 16.00 | 6.01 |
2002 | 242 | 31 | 12.81 | 3.33 |
2003 | 238 | 23 | 9.66 | 2.47 |
2004 | 224 | 16 | 7.14 | 1.72 |
2005 | 225 | 19 | 8.44 | 2.04 |
2006 | 231 | 27 | 11.69 | 2.90 |
2007 | 239 | 28 | 11.72 | 3.00 |
2008 | 164 | 44 | 26.83 | 4.72 |
2009 | 144 | 28 | 19.44 | 3.00 |
2010 | 146 | 21 | 14.38 | 2.25 |
2011 | 108 | 20 | 18.52 | 2.15 |
2012 | 126 | 12 | 9.52 | 1.29 |
2013 | 138 | 13 | 9.42 | 1.39 |
2014 | 168 | 13 | 7.74 | 1.39 |
2015 | 179 | 18 | 10.06 | 1.93 |
1977–2015 Total | 8866 | 1467 | 16.55 | |
1992–2015 Total | 6710 | 932 | 13.89 | 100.00 |
3.2 Method
3.2.1 Event study
3.2.2 Regression model
4 Descriptive statistics
Obs. | Mean | Median | Std. Dev. | Min | Max | |
---|---|---|---|---|---|---|
CAR_withdraw | 291 | 0.010 | 0.007 | 0.081 | − 0.443 | 0.456 |
CAR_ann | 291 | − 0.015 | − 0.010 | 0.082 | − 0.732 | 0.292 |
TCAR_withdraw | 291 | − 0.072 | − 0.032 | 0.166 | − 1.228 | 0.436 |
TCAR_ann | 291 | 0.187 | 0.150 | 0.192 | − 0.198 | 0.938 |
Termination_A | 291 | 0.078 | 0 | 0.269 | 0 | 1 |
Termination_T | 291 | 0.790 | 1 | 0.408 | 0 | 1 |
Relatedness | 291 | 0.667 | 1 | 0.472 | 0 | 1 |
Rsize | 291 | 0.587 | 0.337 | 0.759 | 0.001 | 4.542 |
Attitude | 291 | 0.165 | 0 | 0.372 | 0 | 1 |
Tender offer | 291 | 0.201 | 0.184 | 0.190 | 0 | 1 |
Cash deal | 291 | 0.340 | 0 | 0.475 | 0 | 1 |
Premium | 291 | 35.486 | 30.065 | 29.793 | − 31.95 | 179.79 |
Multi-bidders | 291 | 0.323 | 0 | 0.468 | 0 | 1 |
Lockup | 291 | 0.057 | 0 | 0.156 | 0 | 1 |
Toehold | 291 | 3.541 | 3.387 | 2.099 | 1.185 | 6.520 |
M/B | 291 | 3.670 | 2.42 | 1.968 | 0.315 | 7.216 |
R&D | 291 | 0.279 | 0.064 | 0.462 | 0.018 | 0.826 |
Bid-ask spread | 291 | 0.029 | 0.013 | 0.034 | 0.002 | 0.198 |
Past return | 291 | − 0.001 | − 0.001 | 0.002 | − 0.000 | − 0.007 |
Acquirer inside ownership | 291 | 0.182 | 0.131 | 0.165 | 0.002 | 0.397 |
Target inside ownership | 291 | 0.166 | 0.124 | 0.146 | 0.002 | 0.371 |
Corporate governance | 291 | 9.642 | 10.00 | 2.65 | 0 | 24 |
5 Empirical results
5.1 Market reaction to an M&A withdrawal and net wealth effect
Average withdrawal CAR (%) | Average announcement CAR (%) | Net gain/loss | t-stat for difference (between withdrawal and announcement CARs) | |
---|---|---|---|---|
Panel A. Net gain/loss for acquirer and target
| ||||
Acquirer | 0.96*** | − 1.51*** | − 0.55*** | − 3.15 |
Target | − 7.18*** | 18.65*** | 11.47*** | 6.81 |
Difference (acquirer-target) | 8.14*** | − 20.16*** | ||
t-statistics for difference | 3.24 | − 5.78 |
Average withdrawal CAR (%) | Average announcement CAR (%) | Net gain/loss | t-stat for difference (between withdrawal and announcement CARs) | |
---|---|---|---|---|
Panel B. Net gain/loss for acquirer and target
| ||||
Acquirer | 0.98*** | − 1.54*** | − 0.56*** | − 3.19 |
Target | − 7.39*** | 19.09*** | 11.70*** | 6.82 |
Difference (acquirer-target) | 8.37*** | − 20.63*** | ||
t-statistics for difference | 3.42 | − 5.69 |
Average withdrawal CAR (%) | Difference | t-stat for difference | ||
---|---|---|---|---|
Panel C. Withdrawal CARs and deal/firm characteristics
| ||||
Deals with low CAR_ann | 0.0196 | |||
Deals with high CAR_ann | − 0.0008 | .0204** | 1.8089 | |
Deals without Acq. termination fee | 0.0032 | |||
Deals with Acq. termination fee | 0.0782 | − 0.0750** | − 2.3151 | |
Deals without Tar. termination Fee | 0.0288 | |||
Deals with Tar. termination fee | 0.0038 | 0.0250* | 1.3635 |
5.2 Termination fee provisions and acquirer withdrawal returns
Dependent Var. CAR_withdraw | (1) | (2) | (3) | (4) | (5) | (6) | (7) |
---|---|---|---|---|---|---|---|
CAR_ann | − 0.249*** | − 0.372*** | − 0.383*** | − 0.259** | − 0.267*** | ||
(− 3.925) | (− 5.013) | (− 5.102) | (− 2.725) | (− 2.832) | |||
Termination_A | 0.084*** | 0.080** | 0.061** | ||||
(3.400) | (2.701) | (2.652) | |||||
Termination_T | − 0.051** | − 0.043** | − 0.036* | ||||
(− 2.571) | (− 2.303) | (− 1.908) | |||||
Relatedness | 0.003 | 0.005 | 0.006 | 0.012 | − 0.008 | − 0.001 | |
(0.271) | (0.407) | (0.533) | (0.756) | (− 0.134) | (− 0.020) | ||
Rsize | − 0.019* | − 0.009 | − 0.018* | − 0.010 | − 0.011 | − 0.008 | |
(− 1.703) | (− 1.071) | (− 1.703) | (− 1.206) | (− 1.393) | (− 0.926) | ||
Attitude | − 0.004 | − 0.002 | 0.001 | 0.003 | 0.001 | 0.003 | |
(− 0.070) | (− 0.031) | (0.010) | (0.067) | (0.029) | (0.052) | ||
Tender offer | − 0.007* | − 0.006* | − 0.005 | − 0.004 | − 0.005 | − 0.005 | |
(− 1.820) | (− 1.791) | (− 1.476) | (− 1.439) | (− 1.500) | (− 1.498) | ||
Cash deal | 0.006 | 0.012 | 0.016 | 0.020 | 0.013 | 0.017 | |
(0.477) | (0.720) | (1.179) | (1.452) | (0.938) | (1.192) | ||
Premium | 0.003 | 0.002 | 0.001 | 0.001 | 0.002 | 0.001 | |
(1.432) | (1.390) | (1.081) | (1.080) | (1.259) | (1.250) | ||
Multi-bidders | 0.006 | 0.002 | 0.006 | 0.005 | 0.003 | 0.001 | |
(0.297) | (0.049) | (0.418) | (0.332) | (0.161) | (0.018) | ||
Lockup | − 0.022 | − 0.018 | − 0.025 | − 0.023 | − 0.019 | − 0.021 | |
(− 0.405) | (− 0.262) | (− 0.533) | (− 0.506) | (− 0.284) | (− 0.398) | ||
Toehold | − 0.106** | − 0.112** | − 0.104** | − 0.102* | − 0.106** | − 0.105** | |
(− 2.216) | (− 2.401) | (− 2.025) | (− 1.931) | (− 2.387) | (− 2.309) | ||
M/B | − 0.0002 | − 0.0002 | − 0.003 | − 0.0003 | − 0.0003 | − 0.0003 | |
(− 1.098) | (− 1. 093) | (− 1.300) | (− 1.299) | (− 1.374) | (− 1.282) | ||
R&D | − 0.004 | − 0.003 | − 0.006 | − 0.004 | − 0.005 | − 0.003 | |
(− 0.079) | (− 0.052) | (− 0.010) | (− 0.072) | (− 0.089) | (− 0.059) | ||
Bid-ask spread | − 0.032 | − 0.028 | − 0.040 | − 0.037 | − 0.032 | − 0.040 | |
(− 0.504) | (− 0.377) | (− 0.719) | (− 0.652) | (− 0.510) | (− 0.700) | ||
Past return | − 0.502 | − 0.497 | − 0.533 | − 0.526 | − 0.518 | − 0.510 | |
(− 0.152) | (− 0.137) | (− 0.174) | (− 0.163) | (− 0.150) | (− 0.148) | ||
Acq. inside ownership | 0.006 | 0.005 | 0.007 | 0.005 | 0.006 | 0.006 | |
(0.497) | (0.375) | (0.534) | (0.396) | (0.479) | (0.483) | ||
Tar. inside ownership | 0.007* | 0.005 | 0.005 | 0.007* | 0.006 | 0.006 | |
(1.829) | (1.398) | (1.427) | (1.820) | (0.475) | (1.498) | ||
Corporate governance | 0.000* | 0.000* | 0.0001** | 0.0001** | 0.000* | 0.0001** | |
(1.772) | (1.793) | (2.145) | (2.021) | (1.820) | (2.031) | ||
CAR_ann*Payment | − 0.440* | − 0.459** | |||||
(− 1.847) | (− 1.990) | ||||||
CAR_ann*Relatedness | − 0.216 | − 0.207 | |||||
(− 1.475) | (− 1.283) | ||||||
Constant | 0.141*** | 0.209*** | 0.144*** | 0.177*** | 0.170*** | − 0.009 | 0.180*** |
(10.201) | (15.510) | (10.998) | (13.911) | (12.665) | (− 1.610) | (12.870) | |
Observations | 291 | 291 | 291 | 291 | 291 | 291 | 291 |
R-squared | 0.136 | 0.107 | 0.072 | 0.274 | 0.263 | 0.311 | 0.302 |
6 Further analyses
6.1 Reasons for withdrawal
General reason | Specific reason | No. of deals | % of sample | Acquirer withdrawal CAR (%) |
---|---|---|---|---|
Mutually withdrew/terminated | 39 | 13.4 | 6.53 | |
Disputes on price/term unresolved | 27 | 9.28 | 5.62 | |
Change of view in the review/reassessment | 6 | 2.06 | 11.36 | |
Change from current offer to another agreement or alliance | 3 | 1.03 | 4.36 | |
Unfavorable market conditions | 2 | 0.69 | 7.31 | |
Failure to obtain an agreement with bank lenders or public debt holders | 1 | 0.34 | 6.49 | |
Acquirer withdrew | 56 | 19.24 | 6.99 | |
Target’s operation/financial/accounting problem | 13 | 4.47 | 3.87 | |
Target defense in hostile takeovers | 11 | 3.78 | 5.38 | |
Scuttled target’s other talks | 1 | 0.34 | 3.12 | |
Unfavorable market conditions | 8 | 2.75 | 14.20 | |
Acquirer’s deteriorating financial condition | 6 | 2.06 | 11.07 | |
Conditions of the offer not met by the target | 5 | 1.72 | 7.55 | |
Other opportunities for the acquirer | 4 | 1.37 | 6.59 | |
Slow/no response/action from the target | 3 | 1.03 | 3.10 | |
Acquirer planned an alternative offer | 2 | 0.69 | 1.69 | |
Acquirer was acquired by another firm | 2 | 0.69 | 8.9 | |
Target’s breaches of terms in the agreement | 1 | 0.34 | 2.96 | |
Target rejected | 126 | 43.3 | 3.97 | |
Other superior offers/opportunities for the target | 77 | 26.46 | 3.86 | |
White-knight bid | 2 | 0.69 | 1.17 | |
Not for sale | 18 | 6.19 | 1.02 | |
Disputes on price/term | 14 | 4.81 | 5.41 | |
Board rejection | 2 | 0.69 | 4.07 | |
Disputes on a slate of opposition board nominees or on board member selection | 2 | 0.69 | 3.70 | |
Target’s concern over acquirer’s accounting problems | 1 | 0.34 | 4.70 | |
Acquirer’s inability to close the deal by stipulated time | 1 | 0.34 | 9.69 | |
Rejected with general reasons/no explanations | 9 | 3.09 | 4.25 | |
Competing bidders agreed to buy the target jointly | 2 | 0.69 | 4.35 | |
Antitrust or other regulatory reasons | 36 | 12.37 | 3.90 | |
No reason given | 32 | 11.00 | 5.21 | |
Total | 291 | 100.00 |
Dependent Var. CAR_withdraw | (1) | (2) | (3) | (4) | (5) | (6) |
---|---|---|---|---|---|---|
CAR_ann | − 0.307*** | − 0.359*** | ||||
(− 4.212) | (− 4.844) | |||||
Termination_A | 0.073** | |||||
(2.379) | ||||||
Termination_T | − 0.038** | |||||
(− 2.260) | ||||||
Mutually withdrawn | 0.015* | 0.010* | 0.012* | |||
(1.819) | (1.719) | (1.803) | ||||
Acquirer withdrawn | 0.023** | 0.021** | 0.019** | |||
(2.180) | (2.026) | (2.004) | ||||
Target withdrawn | − 0.016* | − 0.014* | − 0.012* | |||
(− 1.834) | (− 1.821) | (− 1.722) | ||||
Antitrust reason | − 0.019** | − 0.022** | − 0.018** | |||
(− 2.298) | (− 2.498) | (− 2.017) | ||||
Constant | 0.146*** | 0.159*** | 0.166*** | 0.172*** | 0.124*** | 0.138*** |
(13.191) | (16.422) | (17.081) | (19.052) | (11.565) | (12.323) | |
Control variables | No | No | No | No | Yes | Yes |
Observations | 291 | 291 | 291 | 291 | 291 | 291 |
R-squared | 0.012 | 0.020 | 0.018 | 0.021 | 0.330 | 0.321 |
6.2 Does the withdrawal return depend on who initiates the termination?
Dependent Var. CAR_withdraw | (1) | (2) | (3) | (4) |
---|---|---|---|---|
CAR_ann | − 0.327*** | − 0.358*** | ||
(− 4.903) | (− 5.210) | |||
TerminationPaid_A | 0.082*** | 0.055** | ||
(3.340) | (2.446) | |||
TerminationPaid_T | 0.037 | 0.030 | ||
(1.108) | (1.477) | |||
Constant | 0.133*** | 0.128*** | 0.142*** | 0.124*** |
(13.011) | (12.577) | (14.925) | (11.928) | |
Control Variables | Yes | Yes | Yes | Yes |
Observations | 291 | 291 | 291 | 291 |
R-squared | 0.129 | 0.102 | 0.269 | 0.258 |
6.3 CEO overconfidence and termination fee
OC | Non-OC | Difference | t-statistics for difference | |
---|---|---|---|---|
Termination_A | 0.092 | 0.090 | 0.002 | 0.0561 |
Termination_T | 0.374 | 0.255 | 0.119** | 2.1392 |
TerminationPaid_A | 0.062 | 0.076 | − 0.014 | − 0.4661 |
TerminationPaid_T | 0.099 | 0.048 | 0.051** | 2.1401 |
6.4 Withdrawal return and termination fee size
Dependent Var. CAR_withdraw | (1) | (2) | (3) | (4) |
---|---|---|---|---|
CAR_ann | − 0.262*** | − 0.279*** | ||
(− 4.716) | (− 4.902) | |||
Acq. fee size | 0.068 | 0.057 | ||
(0.704) | (0.663) | |||
Tar. fee size | − 0.079 | − 0.062 | ||
(− 0.782) | (− 701) | |||
High Acq. fee | 0.094** | 0.087** | ||
(2.342) | (2.522) | |||
High Tar. fee | − 0.064* | − 0.050 | ||
(− 1.82) | (− 1.497) | |||
Constant | 0.122*** | 0.190*** | 0.156*** | 0.152*** |
(9.517) | (13.627) | (11.975) | (10.763) | |
Control variables | No | No | Yes | Yes |
Observations | 291 | 291 | 291 | 291 |
R-squared | 0.119 | 0.134 | 0.263 | 0.251 |