Abstract
We find that the announced withdrawal of mergers involving private targets produces negative and significant valuation effects on the bidder's stock on average. This result is distinctly different from the valuation effects for merger withdrawals involving public targets. These unique results hold even when we control for the medium of payment and for other factors with multivariate models. The adverse effects of the withdrawal announcement are more pronounced when the merger proposal announcement was more favourable. This implies that the effect of withdrawn merger of a private target reflects a partial correction of the benefits that were previously anticipated when the merger was initially announced.
Notes
1 We also try a variable that captures the percentage of the deal value paid in stock instead of the dummy variable STOCK and the result is qualitatively similar.
2 We also find that the results for the PRIV variable are qualitatively similar even when we separate the entire sample into subsamples according to whether the planned payment is cash versus stock. That is, valuation effects of the bidders are worse when involving private targets than when involving public targets, regardless of whether the planned payment is with cash or stock.