Sebastien Dereeper

Equity Carve-Outs and Revelation of Information about Wealth Effects

Using a sample of equity carve-outs offered over the period of 1985-2015, we find out the time at which the market can know the effects of an equity carve-out on the wealth of existing shareholders. In equity carve-outs, the parent holds a significant fraction of the carved-out subsidiary. Contrary to conventional IPOs, investors can trade in parent’s stock in the non-rationed market during the book-building period of the carve-out. This unique characteristic let the market pre-empt the initial return to the subsidiary shares. We find that the major information regarding the initial returns of the subsidiary is observable in the share returns of the parent firm during the book-building period of the carve-out IPO. Our analysis reveals that this is the time (book-building period) when the market can know the wealth effect of the carve-out on the existing shareholders.

Dividend-Paying Merging Firms and M&A Deal Completion

Analysis of the causes of failure has often been shallow. This paper proposes an explanation as to why some mergers fail to achieve, based on the comparison between merging firms’ specifics. We argue that cancellation may stem from dividend policy dissimilarity between the acquirer and the target arising from the difference between their characteristics. An initial research focuses on what makes a merging firm a dividend-payer. The evidence includes determinants of dividend payment such as size, profitability and cash availability, which is supportive of classical dividend theories. A second research is conducted to illustrate the similarity between dividend policies of merging firms as a driver of deal completion. From the observation of 1843 M&A deals, we find that higher difference in dividend yield leads to lower completion rate. These results highlight the importance of financial match between merging firms in the deal completion process.

Equity Carve-Outs: A Sign of Low Opportunity Industry?

Corporate divestments on the stock markets have been studied since long, but the main focus of previous studies has been the firm level impact of divestments. We take this discussion to the industry level and argue that divestments, on average, are carried out in industries, where opportunities are low. These industries have low operating performance, gauged on capital expenditures, cash flow, sales growth, assets growth, profit margin, market to book value and research and development, compared to industries where there are no divestments. In addition to this evidence, we find that the merger and acquisitions activities, in which the target is in industries where divestments happened in last three years, bidders had less value created compared to mergers where the target industry had no divestments. Both, the low operating performance of industries post divestments and low value created by bidders having targets in industries where divestments happened, signal that industries where divestments take place have low opportunities ahead. This also implies that a corporate change can be interpreted as a signal for industrial change.

Dividend policy following mergers and acquisitions: US evidence

Purpose - The purpose of this paper is to address whether the past dividend policy of target firm impacts dividend policies following US mergers and acquisitions (M&A). Design/methodology/approach - The authors use the catering theory as a theoretical approach to test dividend change after a merger-acquisition. For the empirical design, dividend policy is captured using dividend status, payout ratio and dividend yield, and specifications are estimated using Probit and OLS models. Findings - The data indicate that dividend policy of the target affects dividend policy of the combined entity in cases of stock-based deals. This result provides support for catering theory, which maintains that managers of acquirers adjust dividend policies following transactions to cater to target shareholders’ preferences. Research limitations/implications - Although the tests suggest significant results using dividend status and payout ratio as measures of dividend, the authors do not find a similar effect for dividend yield. Practical implications - Financial analysts evaluating merger-acquisition announcements may wish to predict the dividend policy following stock-based deals as they project the likely impact of past dividend policies of target firms. The results are also likely to be useful to investors. Originality/value - The paper presents new evidence about dividend policy following M&A. To the authors’ knowledge, this is the first study that examines how an acquirer’s dividend policy is affected by an acquisition.

Bank Market Structure, Property Rights and Financial Freedom Effects on Capital Structure: Evidence from Asian Developing Countries

The paper considers direct and indirect impacts of bank concentration, property rights and financial freedom on corporate leverage in 12 Asian developing countries from 2000 to 2013. Our result shows that bank concentration has a directly negative relationship with leverage in these countries but this relationship becomes revertible when bank concentration reaches a given point. Highly concentrated banking market structure favors for profitable firms to obtain debts and is considered as a solution against strong private property rights proxy. A strong private property rights decreases amount of debts financed by banking system and leads firms to prefer using internal funds to obtain protection advantages for newly established assets. Our results indicate stronger degree of financial freedom encourages firms borrow more and supports for profitable firms. Strong degree of financial freedom also reduces the importance of collapse coverage in accessing debts whilst weaker degree of financial freedom leads to an increase of using trade credit as a substitute for bank loans.

The Information Content of Acquirer Dividend Policy in Acquisitions of Publicly Traded Firms

Various studies have analyzed the main determinants of payment method in M&As since the 1980s. We survey 2,260 US acquisitions to determine how relative the existing dividend policy of the acquirer affects the choice of the payment method. Based on the contingent-pricing effect of stock offer, we hypothesize that the likelihood of stock payment increase with the pre-merger dividend policy of the acquirer since the information content of dividends can alleviate adverse selection effects. In a second step, we show that bidder announcement returns are, on average, less negative in all-stock offers for listed targets when the acquirer is a dividend payer. Our findings indicate that acquirer dividend level is a determinant of payment method choice in acquisitions of publicly traded firms. The price reaction analysis suggests that the positive wealth effect is related to the informative effect of acquirer dividend against the risk of information asymmetry when using stock as a means of payment.

The Informational Role of Acquirer Dividend Policy in Corporate Takeovers

Various studies have analyzed the main determinants of payment method in M&As since the 1980s. We examine how relative the existing dividend policy of the acquirer affects the choice of the payment method. Based on the contingent-pricing effect of stock offer, we hypothesize that the likelihood of stock payment increase with the pre-merger dividend policy of the bidder since the information content of dividends can alleviate adverse selection effects. In a second step, we show that bidder announcement returns are, on average, less negative in all-stock offers for public targets when the acquirer is a dividend payer. Our analysis suggests that the positive wealth effect is related to the informative effect of acquirer dividend against adverse selection risk when using stock as a means of payment.

The Dividend Policy of the Merged Firm, Method of Payment, and Takeover Premium

Dividends, particularly of acquiring firms are influenced by several structural adjustments especially after mergers. Using the dividend clientele hypothesis, we hypothesize that acquirer dividend policy is more likely to change after the merger if dividend policies of firms involved in a stock-based merger are quite different, while it remains unaffected in cash deals. Initially, we analyze the relationship between the acquirer dividends after the announcement and the pre-merger dividend policy of the target. In a second step, a multivariate analysis will be conducted to detect dynamics of takeover premium with the differences in dividend policy between merged firms. From the observation of 663 M&As, we find that acquiring firms are more disposed to adjust their dividend policies to those of targets in case of stock mergers than for mergers in cash. Additional analyses show some evidence that higher acquirer dividend is associated with higher takeover premium in cash deals, but there’s no significant association between difference in dividend policies and takeover premium in stock deals. These results highlight the role of the premium to offset the opportunity cost of target shareholders to receive more dividends in the merged entity when they agree a cash merger, and justify the triviality of the premium in stock deals by the disposal of the acquirer to adjust its dividend policy.