Takeover Anticipation and Abnormal Returns

This paper documents that a part of takeover synergy is incorporated in the target and acquirer stock prices prior to the event window of previous studies, around the takeover anticipation date. This result suggests that those studies might quantify only a partial wealth effect of acquisitions. This paper introduces a new approach, which estimates the parameters of the expected return model from the pre-anticipation period, to control the consequences of early anticipation for the measurement of abnormal returns. Contrary to a benchmark event study, this approach finds that the daily average abnormal returns to the target (acquirer) shareholders are smaller by 3.06 (1.71) basis points in the cash acquisitions, and greater by 4.4 (2.12) basis points in the equity deals. These improvements are economically important, as daily returns of the U.S. treasury notes range from 1.13 to 1.78 basis points in the sample period. Overall, using an anticipation-adjusted event study in this paper sheds light on the magnitude of acquisition returns, and so on some well-documented takeover results