Leonce Bargeron

Why do private acquirers pay so little compared to public acquirers

We find that the announcement gain to target shareholders from acquisitions is significantly lower if a private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains from acquisitions and managers of firms with diffuse ownership may pay too much for acquisitions.

Why Do Private Acquirers Pay so Little Compared to Public Acquirers

We find that the announcement gain to target shareholders from acquisitions is significantly lower if a private firm instead of a public firm makes the acquisition. Non-operating firms like private equity funds make the majority of private bidder acquisitions. On average, target shareholders receive 55% more if a public firm instead of a private equity fund makes the acquisition. There is no evidence that the difference in premiums is driven by observable differences in targets. We find that target shareholder gains depend critically on the managerial ownership of the bidder. In particular, there is no difference in target shareholder gains between acquisitions made by public bidders with high managerial ownership and by private bidders. Such evidence suggests that the differences in managerial incentives between private and public firms have an important impact on target shareholder gains from acquisitions and managers of firms with diffuse ownership may pay too much for acquisitions.

The Timing and Source of Long-Run Returns Following Repurchases

This paper investigates the timing and source of anomalous positive long-run abnormal returns following repurchase authorizations. Returns between program authorization and completion announcements are indistinguishable from zero. Abnormal returns occur only after completion announcements. Long-run returns are largely attributable to announcement returns at subsequent authorizations and takeover attempts, i.e., anomalous post-authorization returns are not persistent drifts but rather step functions. These findings have important implications for prior papers examining this most persistent and widespread anomaly. Further, our results serve to refocus the search for a rational explanation for the anomaly on subsequent repurchase announcements and takeover bids.

Disagreement and the Informativeness of Stock Returns: The Case of Acquisition Announcements

We examine whether disagreement between managers and investors relates to the informativeness of bidder returns around acquisition announcements. We predict that greater disagreement about the merits of an acquisition creates uncertainty about investors’ revaluation of acquiring firms, making returns less informative. We document an inverse relation between bidder returns and the change in bidders’ implied volatility. This relation is only significant when there is more disagreement. Also, the relation between bidder returns and the likelihood of deal completion is stronger when announcement returns are more informative, suggesting managers “listen to the market�? more when the market response is more informative.

Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders

While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the targets value is artificially depressed ahead of a private equity acquisition where the CEO is retained.

Employee–management trust and M&A activity

We examine the relation between a firm’s corporate culture and its M&A activity. We find that firms with strong cultures make significantly smaller acquisitions than other firms. Furthermore, bidder returns and the percent change in the combined values of bidders and targets associated with large acquisitions announced by strong culture firms are negative and less than the corresponding returns for other acquirers. Finally, when firms with strong cultures make large acquisitions, their cultures are significantly more likely to suffer as compared with other strong culture firms. The results support the conclusion that corporate culture influences firms’ M&A activity.We examine the relation between the trust that employees have in management and the M&A activity of firms. We measure this trust by using rankings compiled by the Great Place to Work Institute (GPWI) from 1998 to 2011. Although the volume of M&A activity is not significantly different for firms with strong cultures of trust (“SCT firms”) versus other firms, the relative size of acquisitions announced by SCT firms is significantly smaller than the size of acquisitions announced by other firms. Furthermore, when SCT firms announce relatively large acquisitions, bidder returns and the percent change in the combined values of bidders and targets are lower than the corresponding returns for other firms. Finally, when SCT firms make large acquisitions, they are significantly more likely to suffer a loss in their GPWI ranking as compared with other SCT firms. Overall, the results are consistent with the conclusion that the M&A policies of firms are influenced by a culture of trust between employees and management.

The Information Content of Shareholder Tender Agreements

In approximately 60% of tender offers a shareholder pre-commits to tender shares to a particular bidder by signing a Shareholder Tender Agreement (STA). This paper demonstrates the optimality of such a contract as a mechanism to overcome asymmetric information. An STA certifies the bidder’s synergy value to uniformed shareholders, thereby mitigating potential negative effects of asymmetric information and increasing the efficiency of the takeover process. A low valuation bidder who cannot afford a bid that entices tendering without an STA incurs the cost of an STA to certify his low valuation. The STA enables a value increasing takeover, thus benefiting all bidder and target firm shareholders. Consistent with existing empirical evidence, the model predicts lower bids, greater uncertainty, and greater ownership concentration in STA offers.

What Is Revealed When Firms Repurchase Against Short Selling

Though short sellers on average succeed at identifying overvalued equity, firms often signal disagreement with short sellers by repurchasing stock when short interest increases. We investigate whether this disagreement reflects a myopic defense of inflated prices, or positive private information. These repurchases appear motivated by managers’ private information, not agency issues, even when managerial benefits to short-termism are enhanced or monitoring is weaker. Managers’ informational advantage relates to subsequent news, earnings, and risk, but is attenuated if activists target management or insiders sell. A trading strategy based on our findings earns 7.5% annually.

Does Limited Liability Matter: An Analysis of California Firms, 1920-1940

In 1931, California became the last U.S. state to adopt limited liability for stockholders. Prior to that, from its inception as a state in 1849, stockholders of California corporations faced pro rata unlimited liability. California’s unique liability rule during 1849-1931 provides a natural experiment for testing whether stockholders’ liability rules “matter.” Using a small sample of publicly traded California firms and a corresponding sample of benchmark companies, we find that California firms realized annual excess returns that were approximately nine percentage points higher than other companies during the 1920s, which is consistent with the view that unlimited liability increases the expected returns on equity. We also find that excess returns for California firms were approximately -12% in October 1929, which suggests that the 1929 stock market crash put the personal assets of stockholders of California firms at risk We find that share turnover was significantly lower for California firms than other firms during the period California had unlimited liability, but not so after California adopted limited liability. Finally, we find weaker evidence that California firms had more leverage, lower asset risk, and less growth as compared with other firms during the period it had unlimited liability. Overall, the results suggest that rules regarding stockholders’ liability matter for the pricing of securities, share turnover, and various corporate policies.