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Two essays in merger clauses
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Two essays in merger clauses
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Wu
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Ge
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1983-
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Ge Wu
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Palia
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Darius
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Darius Palia
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chair
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Osterrieder
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Daniela
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Daniela Osterrieder
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Patrick
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Robert
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Robert Patrick
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Coates
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John
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John Coates
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Rutgers University
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Graduate School - Newark
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theses
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2018
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2018-10
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2018
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xx
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eng
Abstract
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This dissertation studies the impact of merger clauses. Merger clauses allocate the risks between the target and the bidder, share information among different parties in the deal and manage the negotiation process and disputes.
In the first essay, I look at reverse termination fees (henceforth, referred to as RTFs). RTFs are required payments by bidders when they “walk away” from a merger or acquisition, and vary significantly in size and design. I find inefficient RTFs correlate with lower bidder returns, even in a subsample where disclosure of RTF terms lags deal announcements by more than two days. I also find inclusion of certain RTFs in consolidating industries reveals private information to the market, resulting in negative abnormal returns. Finally, I find a negative significant relationship between the probability of deal completion and inefficient and negative signal RTFs, consistent with the fact that deals with inefficiently designed RTFs signal the bidder’s lower commitment to the current deal and deals with negative signal RTFs are adopted in consolidating industries where both deal competition and antitrust issues are higher than in other deal settings.
In the second essay, I construct merger clauses indices based on legal scholars’ ex-ante prediction and examine the relationship between announcement returns and different types of merger clauses. I find that bidder protective clauses correlate with higher bidder returns while target protective clauses and pro-competition clauses correlate with higher target returns. I also find that bidder and target protective indices have larger impacts on announcement abnormal returns for “bad” deals than for “good” deals. Finally, I find that the inclusion of more bidder protective clauses leads to lower deal completion rates while the inclusion of more target protective clauses and pro-competition clauses has no impact on deal completion rates. These results are consistent with the expert lawyer/efficient contracting view of Cain, Macias, and Davidoff Solomon (2014), and Coates (2016), and against merger contracts as boilerplate agreements.
In the first essay, I look at reverse termination fees (henceforth, referred to as RTFs). RTFs are required payments by bidders when they “walk away” from a merger or acquisition, and vary significantly in size and design. I find inefficient RTFs correlate with lower bidder returns, even in a subsample where disclosure of RTF terms lags deal announcements by more than two days. I also find inclusion of certain RTFs in consolidating industries reveals private information to the market, resulting in negative abnormal returns. Finally, I find a negative significant relationship between the probability of deal completion and inefficient and negative signal RTFs, consistent with the fact that deals with inefficiently designed RTFs signal the bidder’s lower commitment to the current deal and deals with negative signal RTFs are adopted in consolidating industries where both deal competition and antitrust issues are higher than in other deal settings.
In the second essay, I construct merger clauses indices based on legal scholars’ ex-ante prediction and examine the relationship between announcement returns and different types of merger clauses. I find that bidder protective clauses correlate with higher bidder returns while target protective clauses and pro-competition clauses correlate with higher target returns. I also find that bidder and target protective indices have larger impacts on announcement abnormal returns for “bad” deals than for “good” deals. Finally, I find that the inclusion of more bidder protective clauses leads to lower deal completion rates while the inclusion of more target protective clauses and pro-competition clauses has no impact on deal completion rates. These results are consistent with the expert lawyer/efficient contracting view of Cain, Macias, and Davidoff Solomon (2014), and Coates (2016), and against merger contracts as boilerplate agreements.
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Topic
Management
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Consolidation and merger of corporations
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Rutgers University Electronic Theses and Dissertations
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ETD_9076
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1 online resource (75 pages : illustrations)
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Ph.D.
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Includes bibliographical references
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by Ge Wu
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Graduate School - Newark Electronic Theses and Dissertations
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rucore10002600001
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doi:10.7282/t3-jr4x-we31
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ETD doctoral
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The author owns the copyright to this work.
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Wu
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Ge
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2018-06-18 12:05:16
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Ge Wu
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Rutgers University. Graduate School - Newark
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Author Agreement License
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I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.
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