The contractual features of merger agreements.

摘要

In the first chapter, I examine the use of collars in merger agreements. The most important cross-sectional determinants of the bid structure (cash versus stock, and whether to include a collar) are the market-related stock return standard deviations for the bidder and target. This is consistent with the hypothesis that the method-of-payment choice is dependent on the sensitivities of the bidder and target market values to market-related risk because either the bidder or target has the incentive to demand renegotiation of the merger terms if the ratio of the value of the bidder's offer relative to the value of the target changes materially during the bid period. Furthermore, the inclusion of a collar in a merger agreement also significantly reduces (by half) the probability that the terms of the bid require revision during the bid period, and increases the likelihood that the transaction is successfully completed. In addition, I argue that a collar bid offers two sources of value to target shareholders: the basic offer premium and the value of the implicit collar options. I find that the market prices both components of value equally, suggesting that the two offer components are substitutable.; My second chapter examines the use of termination fees in merger agreements. I test the implications of the hypothesis that termination fees are used by self-interested target managers to deter competing bids and protect “sweetheart” deals, presumably resulting in lower premiums for target shareholders. An alternative hypothesis is that target managers use termination fees to encourage bidder participation by ensuring that the bidder is compensated for the revelation of valuable private information released during merger negotiations. My empirical evidence demonstrates that merger deals with target termination fees involve significantly higher premiums and success rates than deals without such clauses. Furthermore, only weak support is found for the contention that termination fees deter competing bids. The evidence suggests that termination fee use is at least not harmful, and is likely beneficial, to target shareholders, and is consistent with the interpretation that termination fees are used to encourage the release of private information by bidders during the merger process.