Reservation prices in shareholders’ response to freeze-out tender offers

Assaf Hamdani; Beni Lauterbach; Yevgeny Mugerman

doi:10.1016/j.intfin.2019.101160

Reservation prices in shareholders’ response to freeze-out tender offers

Assaf Hamdani, Beni Lauterbach, Yevgeny Mugerman^*

^*Corresponding author for this work

Faculty of Law

Bar-Ilan University

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

We employ a sample of 201 freeze-out tender offers (offers of controlling shareholders to buy all public shares) in Israel to examine how investors’ decision (to accept or reject the offer) is influenced by alternative reference prices, some of which are commonly specified in freeze-out offers. Our findings reveal that average purchase price is the key reservation price – when freeze-out offer price exceeds our novel estimate of the minority shareholders’ average purchase price of the shares, offer acceptance probability increases significantly. Thus, purchase price appears as a more fundamental behavioral anchor than its main competitor – the past 52-weeks high.

Original language	English
Article number	101160
Journal	Journal of International Financial Markets, Institutions and Money
Volume	64
DOIs	https://doi.org/10.1016/j.intfin.2019.101160
State	Published - Jan 2020

Keywords

Freeze-out transactions
Loss aversion
Reference points

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10.1016/j.intfin.2019.101160

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title = "Reservation prices in shareholders{\textquoteright} response to freeze-out tender offers",

abstract = "We employ a sample of 201 freeze-out tender offers (offers of controlling shareholders to buy all public shares) in Israel to examine how investors{\textquoteright} decision (to accept or reject the offer) is influenced by alternative reference prices, some of which are commonly specified in freeze-out offers. Our findings reveal that average purchase price is the key reservation price – when freeze-out offer price exceeds our novel estimate of the minority shareholders{\textquoteright} average purchase price of the shares, offer acceptance probability increases significantly. Thus, purchase price appears as a more fundamental behavioral anchor than its main competitor – the past 52-weeks high.",

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AB - We employ a sample of 201 freeze-out tender offers (offers of controlling shareholders to buy all public shares) in Israel to examine how investors’ decision (to accept or reject the offer) is influenced by alternative reference prices, some of which are commonly specified in freeze-out offers. Our findings reveal that average purchase price is the key reservation price – when freeze-out offer price exceeds our novel estimate of the minority shareholders’ average purchase price of the shares, offer acceptance probability increases significantly. Thus, purchase price appears as a more fundamental behavioral anchor than its main competitor – the past 52-weeks high.

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KW - Loss aversion

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Reservation prices in shareholders’ response to freeze-out tender offers

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Keywords

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