Collars and Renegotiation in Mergers and Acquisitions



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    • Micah S. Officer is at the Marshall School of Business at the University of Southern California. I thank my dissertation committee, Gregg Jarrell, Bill Schwert (Chair), and Cliff Smith, for their help and encouragement. I also thank Harry DeAngelo, Andreas Gintschel, Rick Green (the editor), John Long, Stanimir Markov, David Ravenscraft, Sheridan Titman, Jerry Warner, an anonymous referee, and seminar participants at Boston College, Emory University, and the Universities of North Carolina, Notre Dame, Oregon, Pittsburgh, Rochester, and Southern California for helpful comments.


I examine the motivation for, and effect of, including a collar in a merger agreement. The most important cross-sectional determinants of the bid structure (cash vs. stock, and whether to include a collar) are the market-related stock return standard deviations for the bidder and target. This evidence supports the hypothesis that the method of payment is dependent on the sensitivities of the bidder and target to market-related risk because either has the incentive to demand renegotiation of the merger terms if the value of the bidder's offer changes materially relative to the value of the target during the bid period.