Table 3

Regressions of the total premium paid to target stockholders (Premium) on the pre-bid runup (Runup) for various samples of successful and unsuccessful mergers and tender offers for exchange-listed target firms, 1975-91:

Premium = a + b Runup + ui,

where Premium = Runup + Markup. Runup is the cumulative abnormal return to the target's stock from day -42 to day -1 relative to the first bid. Markup is the cumulative abnormal return to the target's stock from the day of the first bid through delisting or 126 trading days after the first bid, whichever comes first. The substitution hypothesis implies b < 1, while the markup pricing hypothesis implies b = 1. S(u) is the standard error of the regression and Rsq is the adjusted coefficient of determination. White's (1980) heteroskedasticity-consistent standard errors are used to calculate t-statistics. The main sample excludes deals that took longer than one year to consummate and target firms whose equity value is small (below $10 million) or whose pre-runup stock price is low (below $2 per share). All of the following samples are subsets of the main sample.

.

Sample

Proportion of SampleSample Size, N Runup Coefficient, bT-stat, t(b=1)Intercept, aT-stat, t(a=0) S(u)Rsquared
All1,8141.1302.880.0848.340.3150.35
Main1,5231.0751.660.0959.050.2960.33
Successful77.1%1,1741.0180.450.15615.110.2520.37
Unsuccessful22.9%3491.0620.450.0813.320.3580.26
News45.9%6991.1182.160.0614.200.2950.37
No News54.1%8241.0530.740.1218.160.2950.30
Poison Pill15.0%2291.0740.450.1674.950.3410.27
No Pill85.0%1,2941.0801.850.0827.720.2860.35
Auction20.5%3120.8620.970.2007.090.3580.16
No Auction79.5%1,2111.1242.890.0686.410.2740.39
Tender Offers37.0%5640.9031.620.21614.890.2470.31
Mergers63.0%9591.1101.820.0362.690.3070.34
MBOs11.4%1730.8660.940.1034.030.2670.22
Cash61.1%9311.0030.070.14111.840.2840.32
Equity16.7%2541.1771.180.0612.230.3130.37
Insiders8.9%1350.6673.070.2739.530.2180.19
No Insiders91.1%1,3881.0871.830.0837.650.3000.33
By Year of the First Bid:
19751.6%251.2811.060.1091.770.2930.37
1976 2.8% 430.9320.360.1673.010.2540.32
1977 4.5% 680.7641.830.1823.950.2130.27
1978 5.7% 871.0410.260.0290.600.3000.27
1979 6.0% 920.9950.040.0370.920.2470.40
1980 6.0% 921.1601.380.0461.310.2610.45
1981 5.2% 791.2001.110.1593.510.3040.30
1982 5.3% 810.8980.810.1895.780.2120.46
1983 5.5% 841.4562.690.0300.700.2690.53
1984 6.6%1011.2121.120.0391.030.2430.43
1985 8.1%1231.0900.530.0712.390.2490.26
198610.5%1600.9490.530.1114.470.2660.29
1987 8.5%1290.9230.550.1153.380.3280.23
198810.8%1651.3842.850.1614.510.3210.41
1989 7.5%1140.9900.040.0410.900.3810.24
1990 3.3% 500.9450.190.0731.500.3710.14
1991 2.0% 301.3961.540.1823.720.3610.45

Note: For definitions of the sample groupings, see Table 2.

© Copyright 1996, G. William Schwert
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