Abstract
We examine the provision of termination fee clauses in merger agreements between 1989 and 1998. Target-payable fees are observed more frequently when bidding is costly and the potential for information expropriation by third parties is significant. Fee provisions appear to benefit target shareholders through higher deal completion rates and greater negotiated takeover premiums. We conclude that target-payable fees serve as an efficient contracting device, rather than a means by which to deter competitive bidding. Bidder fee provisions appear to be used to secure target wealth gains in deals with higher costs associated with negotiation and bid failure.
Original language | English (US) |
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Pages (from-to) | 469-504 |
Number of pages | 36 |
Journal | Journal of Financial Economics |
Volume | 69 |
Issue number | 3 |
DOIs | |
State | Published - Sep 1 2003 |
Externally published | Yes |
Keywords
- Acquisition
- Breakup fee
- Merger
- Termination fee
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management