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Abstract
This research examined the relationships existing between the implementation of a tender offer and subsequent performance of the bidding organization. Of additional interest was whether significant differences were exhibited among firms that used the tender offer form of acquisition, other forms of acquisition, or no acquisition.
This study measured the effects of tender offers as they pertained to the overall performance of bidding companies, the benefits realized by top management, and the long-term impact on shareholders. These effects were also measured for acquiring (through means other than a tender offer) and control firms.
Overall firm performance was measured by residual return on common equity. Managerial welfare was measured by residualized real growth rates in size (assets, sales, and employees), and by direct managerial remuneration. Shareholder welfare was measured by residualized total return to shareholders. Organizational size, market, and industry effects were controlled for where appropriate.
The results of this research support the contention that the tender offer is a unique form of acquisition worthy of distinct analyses. There were several instances in which findings differed between the bidding and acquiring groups. Additionally, the behavior of the control group was rarely similar to that of the bidding and acquiring groups.
Finally, this research presents a number of findings of interest with respect to the overall effectiveness of tender offers and acquisitions and with regard to the managerial welfare hypothesis. Those who have questioned the ultimate successfulness of the tender offer or acquisition decision gain support from the post period findings, and the management remuneration results lend support to the managerial welfare theory. The findings with respect to shareholder gain suggest that shareholders may have been optimistic regarding the proposed expansion strategy and thus bid up the share price of the stock, and the decrease in share value experienced in the post period may have been due to the realization that the actual benefits of the tender offer had been over-estimated.
