We wish to thank Jayant Kale (editor) and an anonymous reviewer for their valuable suggestions.
CLUSTERED SYNERGIES IN THE TAKEOVER MARKET
Article first published online: 18 NOV 2008
© 2008 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 31, Issue 4, pages 333–356, Winter 2008
How to Cite
Madura, J. and Ngo, T. (2008), CLUSTERED SYNERGIES IN THE TAKEOVER MARKET. Journal of Financial Research, 31: 333–356. doi: 10.1111/j.1475-6803.2008.00242.x
- Issue published online: 18 NOV 2008
- Article first published online: 18 NOV 2008
In a competitive market for takeover bids, the takeover premium serves as an effective proxy for the expected synergy. We find that the expected synergy is primarily related to the premiums paid in other recent takeovers in the same industry. This relation is even stronger when considering previous takeovers (especially over the previous three-month horizon) in the same industry that have the same payment method (cash versus stock) or form of takeover (tender offer versus merger). More of the variation in expected synergies among takeovers can be explained by the premiums derived from recent takeovers in the same industry than by all bidder- and target-specific characteristics combined. We also find that the bidder valuation effects are inversely related to the premium paid for targets, implying that abnormally high premiums may reflect overpayment rather than abnormally high synergies.