Tailwind and headwind bidding in German Takeover offers – the impact of target stock price movements and takeover regulation on takeover success

Pre-bid target share price movements are potentially increasing the cost of takeovers and thus are seen as a detriment for the efficiency of the market for corporate control. This pa-per investigates the relationship of pre-bid stock price movements, takeover regulation and offer premium and their combined impact on takeover success for a sample of 311 takeo-ver offers of German publicly listed companies from 2006 to 2019. We provide evidence of a significant (abnormal) stock price runup for the takeover offers in our sample with an abnormal return of around 8%. Further, analysis of German takeover offers is of particular interest as its takeover code contains a minimum bid requirement for control-taking offers potentially creating “headwind” and “tailwind” environments for the bidder if the current stock price at announcement is higher (“headwind”) or lower (“tailwind”) than the required minimum offer price. We find the success rate of a takeover offer to be significantly lower in a “headwind” environment. Our results also suggest that this negative effect is in part compensated by the significantly higher positive impact of the offer premium on takeover success in headwind environments. Thus this study provides evidence that target share-holder judge a given offer premium differently in these two environments. Differentiating according to the bidder’s toehold our results suggest that control-expanding offers made from a bidder already having the majority of shares are significantly different to control-taking offers with respect to their features and impact factors on the offer’s suc-cess rate