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Title:Does patience pay? Empirical testing of the option to delay accepting a tender offer in the US banking sector PDF Logo
Authors:Campbell, Rachel A.
Kräussl, Roman
Issue Date:2006
Series/Report no.:CFS Working Paper 2006/32
Abstract:We examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the U.S. banking sector. We provide estimates for the option value that the target bank has in waiting for a higher bid instead of accepting an initial tender offer. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of almost 12.5% for a sample of 424 mergers and acquisitions between 1997 and 2005 in the U.S. banking industry. Regression analysis reveals that the option price is related to both the price to book market and the free cash flow of target banks. We conclude that it is certainly in the shareholders best interest if subsequent offers are awaited.
Subjects:Option-pricing Model
Mergers and Acquisitions
U.S. Banking Industry
JEL:G34
C10
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-38065
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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