Australian Takeovers AJM 1984

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Australian Journal of Management
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DOI: 10.1177/031289628400900105
1984 9: 63 Australian Journal of Management
Terry S. Walter
Australian Takeovers: Capital Market Efficiency and Shareholder Risk and Return
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AUSTRALIAN TAKEOVERS:
CAPITAL MARKET EFFICIENCY
AND SHAREHOLDER RISK AND RETURN
by
Terry S. Walter*
Abstrract:
This paper' e:r:plains the shar'e rrnr'ket.'s r'esponse to Austrral,ian takeover' bids.
Both successful, and unsuccessful bids ar'e consider'ed. TWo issues ar'e addr'essed.
Fir'stl,y, takeover's ar'e viewed in of c01'porrate investment decisions; the
pr'ofitabil,ity of these decisions to the offer'ee and to the offe1'or' ar'e
investigated. Secondl,y, takeover' bids ar'e seen as a valuabl,e sour'ce of
info'Y'l'l'rZtion r'el,evant to the deteromination of a fi1'm.'s shar'e rrnr'ket
capital,isation. The adjustment of sha1'e pr'ices to this info'Y'l'l'rZtion sour'ce is
studied within the context of the Efficient Mar'kets Hypothesis. The r'esul,ts
indicate that offer'ee shar'ehol,der' r'etu1'nS ar'e no'Y'l'l'rZl, Or' bel,ow no'Y'l'l'rZl, proior' to a
bid; wher'eas offer'or's exhibit above averrage r'etu1'ns. When a bid is rrnde, offer'ee
shar'ehol,der's typical,ly r'eceive significant positive excess r'eturons; wher'eas
offer'or' shar'ehol,der's gain no additional benefit. Austrral,ian shar'e rrnr'kets ar'e
to be semi-str'ong efficient in the Farna sense, namel,y that info'Y'l'l'rZtion
rrnde publ,ic duroing takeover' negotiations is rrapidl,y and without bias inco1'porrated
into shar'e proices.
Keywo1'ds:
TAKEOVERS; EFFICIENT MARKET HYPOTHESIS; RISK; SHAREHOLDER RETURN;
ASSET PRICING; MERGERS
*Department of Accounting, University of New South Wales. This paper is drawn
from my Ph.D. thesis at the University of Western Australia. The study was
inspired by Professor Philip Brown whose comments and encouragement are
gratefully acknowledged. The comments of participants at workshops at the
Australian Graduate School of Management, the University of Queensland and
the University of Western Australia and those of examiners and a reviewer are
also acknowledged, in particular R. Ball, P. Dodd, G. Foster, F. Finn and
R. Officer. The usual exclusions apply.
63
Copyright 2001 All Rights Reserved
WALTER: TAKEOVERS
This paper explains the share market response to Australian takeover
announcements. Two issues are addressed. Firstly takeovers are discussed in
terms of corporate investment decisions. The profitability of these decisions to
the of feror and to the of feree are invest igated. Secondly takeover bids are
viewed as the public release of information potentially relevant to the
determination of a firm's share market capitalisation. The adjustment of share
prices to the announcement of takeover bids is studied.
The study has its justification in the following grounds.
i. Takeovers are frequent events in Australia.
Several authors have documented incidence and outcome statistics for
Australian takeover bids. Bushnell (1961) studied bids during 1945 to 1959,
and both Walker (1973) and Stewart (1977) investigated takeover activity
during 1960 to 1970. Walker, for example, estimated that 38 percent of
firms which were listed on the Sydney stock exchange at some stage during
1960 to 1970 were subject to a bid, and that four out of five bids
succeeded.
ii. Takeovers are significant events.
Receipt of a takeover bid is among the most significant shocks in a firm's
history. For the offeree, a successful bid often leads to the end of
shareholder independence, and frequently results in major managerial and
policy changes. For the offeror, takeovers can involve significant
investment outlays, together with considerable changes to the firm's
financial structure, asset base and related earnings stream.
iii. Australian evidence on takeovers is incomplete.
There has been only one major study [Dodd (1976) 1 directed specifically at
describing the share market returns associated with takeovers. This is
surprising given the frequency of takeover bids. However, Dodd's results
are in part inconsistent with recent overseas eVidence, and with the
hypotheses he tested.
l
1. TAKEOVERS AND SHAREHOLDER RETURNS
Takeovers are a controversial issue in the finance literature.
Viewpoints exist at the theoretical and motivational levels.
2
Extreme
Takeovers have, for example, been advanced as a vehicle used by business to
exploit market imperfections.
3
It is argued that certain firms can actively seek,
discover and acquire firms whose resources are undervalued in the share market.
Under this scenario it is expected that shareholders of firms involved in market
exploitation earn excess positive returns.
4
It is often suggested that regulation
post-bid excess negative returns of approximately seven percent
per year for shareholders of firms whose bids were successful. This result is
anomalous with respect to market efficiency.
2. Steiner (1975) provides an excellent coverage of much of the recent
theoretical literature on the causes of takeovers.
3. See, Lintner (1971) for an attempt to develop such a theory of mergers.
4. An excess positive (negative) return in this paper is defined as a return that
is greater (less) than that expected for a given level of risk. An excess
64
COPYright 2001 All Rights Reserved
WALTER: TAKEOVERS
or reform is required to protect the interests of shareholders whose ownership
claims are acquired.
5
In contrast, it has been argued that managerial self-interest is the primary
motivation in takeovers;6 that management engages in takeovers to maximise firm
size rather than shareholder wealth. Acquiring firms are supposed to earn excess
negative returns. It is argued that management retains its position due to
separation of ownership and control. Managerial behaviour as hypothesised in the
development of the 'traditional' self-interest motive can occur only when
breakdowns exist in the market for corporate control or the managerial labour
market. Clearly, separation of the managerial decision-making-function and the
risk-taking function can and does eKist without managers pursuing non-value
maximising behaviour.
7
Between these extremes lies the notion of an acquisitions market, or market for
corporate control, where competition among bidding firms works to ensure that
"bargains" ex ante do not exist. Prices paid in takeovers are such that the
expected return from an acquisition is commensurate with the level of risk
inherent in the investment.
8
This represents a special, and perhaps unrealistic,
case of a competitive acquisitions market hypothesis. Suppose synergistic
benefits from an acquisition are specific to a particular offeror. Here the
successful offeror, facing a competitive market for acquisitions, will pay at
least the value of the target to any alternative bidder. Hence the existence of
a competitive market does not necessarily imply normal returns for an offeror.
Clearly some offerors do earn abnormal returns in acquisitions.
(IE) Hypothesis
Dodd and Ruback (1977, p.354) argue:
"the hypothesis contends that the assets of the target firm were not being
utilised efficiently prior to the takeover offer. The bidding firm is
assumed to be motivated by information on the inefficiency Whatever the
origins of the inefficiency, the announcement of a takeover is received as
positive information for the target firm, irrespective of the outcome of
the offer".
Mergers may thus be viewed as a capital market mechanism to remove resources from
the monopolistic control of firm managers who are under-utilising them to
competing firms which can use them more effectively. Irrespective of the origins
of the existing under-utilisation, the unanticipated announcement of a takeover
positive (negative) return is also referred to in this paper as a gain (loss).
Several alternative terms are found in the finance literature to describe returns
greater (less) than those expected for a given level of risk. These include
abnormal return, abnormal performance and above-average returns. See, Fama
(1970, 1976), or Foster (1978).
5. Chambers (1973) strongly advocates the case for the reform of the "quality" of
accounting informati.on.
6. See, Mueller (1969), but see also, Grabowski and Mueller (1975).
7. See, Fama (1980).
8. See, Mande1ker (1973).
65
WALTER: TAKEOVERS
bid usually increases the market capitalisation of the offeree because it
increases the expected value of shareholder future wealth. Four out of five bids
are successful and for the one that is not, unless permanent barriers
9
to an
offeree's acquisition are erected in response to the bid, its market
capitalisation should also increase. The reason is that the probability of
receiving a second (successful) bid at a future date conditional on an
unsuccessful bid now, exceeds the unconditional probability.lO
The implications of the internal efficiency hypothesis for offeror returns are
less clear, and depend on the market's evaluation of the offer price and new
information released in the bid. Dodd and Ruback explain (1977, p.354):
"if information of the target firm's inefficiency is publicly available
prior to the offer, competition in the acquisitions market would imply
normal returns for the bidding firms. If the information is not publicly
available prior to the offer and is not released during the offer, positive
abnormal returns will be realised by bidding firms Which are successful.
Those bidders whose offers are unsuccessful... can experience abnormal
losses as resources are dissipated" .11
2. TAKEOVER OFFERS AND SHARE PRICE ADJUSTMENTS
For any takeover offer, a bid price (including costs)12 can be envisaged where
the expected return to the offeror is that normally expected for the risk
inherent in the acquisition. At such a price, the acquiring firm's shareholders
can expect no excess return in an efficient market. By contrast, a bid price can
be contemplated that is above or below the normal, or equilibrium, level. A
number of questions then follow. For example, what returns can a shareholder of
an of feror firm expect on the unanticipated announcement of a takeover? What
return is expected for an offeree firm? Are the returns conditional on the bid's
success?
The answers to these questions depend on the market's interpretation of the
implications of the bid, and the speed with Which any information released by the
offer is incorporated into share prices.
in Australia, legislative barriers which restrict some firms'
entry into the takeover market. See, for example, the Companies (Foreign
Takeovers) Act 1972 and the Trade Practices Act 1974. Further, Australian
legislation restricts takeover activity in industries such as banking,
broadcasting and television and trustee management.
10. See p.79.
11. The acquisition cost on announcement for an eventually successful offeror
includes the discounted probability that the bid will fail and that certain costs
(e.g. legal expenses, auditing fees, the cost of managerial time and the cost of
complying with the information requirements of the legal system and stock
exchange listing) will be incurred for no return. These probabilities are
revised as the progress of the bid becomes known to investors. See pp.85-7.
12. Smiley (1976) estimated the cost in the u.S. of a takeover (including the
bid premium and managerial time) is of the order of 15 percent of the bid price.
66
Copyligl,L @ 2M 1 All Rigl,ts Qed
WALTER: TAKEOVERS
The Effieient Mapket8 Hypothe8i8 (EMH)
In an efficient market, prices respond rapidly to information.
13
Fama (1970) 14
identifies three forms of the EMH, depending on the particular information set
assumed to be available to the market. In its "weak" work the information set is
confined to the past series of share prices; in the "semi-strong" form, the
information set is publicly available information; and in the "strong" form, the
information set is all information relevant to the pricing of a security.
According to the EMH (in the "semi-strong" form), when information inherent in a
takeover announcement becomes publicly available, share prices instantaneously
adjust. The EMH does not rule out the possibility of excess returns accruing ex
post to the shareholders of either the acquiring firm or the acquired firm. It
predicts that market prices react immediately and without bias (Le. traded
prices are equilibrium prices) to the news of a takeover bid.
J. PREVIOUS EVIDENCE
The empirical evidence discussed in this paper is confined to those studies which
have employed models derived from the two parameter asset pricing model developed
by Sharpe (1964), Lintner (1965), and others. These studies are summarised in
Table 3.1. Excellent discussions of earlier evidence are provided by Hogarty
(1970a), Dodd (1975), Henderson (1974), and Mueller (1977).
Hogarty (1970a, p.389) concluded his survey of early merger history (covering
mergers in the period 1904-1960), thus:
"what can fifty years of research tell us about the profitability of
mergers? Undoubtedly the most significant result of this research has been
that no one who has undertaken a major empirical study has concluded that
mergers are profitable, Le. profitable in the sense of being "more
profitable" than alternative forms of investment. A host of researchers,
working at dif ferent points of time and ut i lising dif ferent analyt ic
techniques and data, have but one major difference: whether mergers have a
neutral or negative impact on profitability."
Is this conclusion still valid for the evidence of the 1970s? Certainly, as it
related to Australian research on acquiring firms, it appears to be. Dodd (1976)
reports significant post announcement losses for offerors, results which are
anomalous with respect to the EMH. In contrast, major studies undertaken in the
United States by Mandelker (1974), Ellert (1976), and Dodd and Ruback (1977)
suggest that the United States share market is efficient with respect to the
informa tion inherent ina takeove r announcement. They are also cons istent wi th
the Internal Efficiency Hypothesis.
Studies summarised in Table 3.1 produced consistent results for the acquired
firms. Typically, after a period of excess negative returns, they experience
gains in the period leading up to and including the takeover announcement date.
Halpern (1973), Mandelker (1974), Dodd (1976), F;llert (1976), Firth (1976),
13. Strictly stated, the hypothesis is that share prices are continuously in
equilibrium; that is to say, the expected returns conditional upon acting on an
assumed information set are the same as the uncondi tional returns, ceteris
paribus.
14. Cf. Grossman (1976).
67
Co ri ht 2001 All Rights Reserved
WALTER: TAKEOVERS
Franks, Broyles and Hecht (1977), and Dodd and Ruback (1977) found similar
patterns for the CARs; patterns which are consistent with market efficiency.
Substantial gains in takeover negotiations are won by the shareholders of the
of feree finn.
An obvious question arises when comparisons are made between the results of the
more recent studies (based on risk-adjusted shareholder returns) and the previous
(in general, accounting-based) research:
15
can the conflicting results be
attributed to the differing modes of analysis?
It seems that a study of the same sample in both modes is unlikely to resolve
this issue as accounting numbers, under present accounting practice, are not able
to efficiently address questions on the timing of wealth changes. Schwert (1982)
argues that wealth changes could be isolated if accountants reported the economic
replacement cost of the finn. In general, because accountants report the
historical costs of individual assets, it is not possible to tEasure wealth
changes associated with say a takeover by relyirg on these data. Even if current
values reported conceptual problems exist.
l
The empirical evidence reviewed in this section, with the exception of Firth
(1976), was based on samples of the total population of takeover offers. Some of
these samples are selected with bias, for example, larger companies [Mandelker
(1974), Dodd (1976), Ellert (1976)].17 Most researchers have restricted their
attention to successful takeovers [Halpern (1973), Mandelker (1974), Ellert
(1976), Firth (1976), Franks, Broyles and Hecht (1977)]. A population of
Australian takeover offers, irrespective of the outcome is used in this study.
4. DATA AND METHODOLOGY
4.1 Data
All 572 takeover bids for more than half the outstanding ordinary shares of the
offeree, being an Australian listed company, and made between 1 January 1966 and
31 December 1972, are included in this study. The bids were identified from
Walker (1973), a schedule of delis ted firms prepared by the Sydney Stock Exchange
Limited, and tables published in The Australian Financial Review. Each bid was
classified as successful or unsuccessful, with success being defined as obtaining
a controlling interest (greater than half the offeree's ordinary shares).18
IT:Accounting -based studies which suggest takeovers are unsuccessful for
acquirers include: Reid (1968), Poindexter (1970), Laiken (1972), and Kuehn
(1975). A considerable amount of empirical evidence has been published since the
cut-off date for review used in the thesis on which this paper is based. This
evidence is reviewed in Jensen and Ruback (1983).
16. See, Schwert (1982, pp.146-147).
17. A reviewer correctly points out that since no one has incorporated
held and unlisted companies, all studies suffer from a size bias.
acquisitions are undoubtedly more important for economic management;
likely to involve large firms.
privately
Certain
these are
18. This criterion is necessarily subjective. Note, however, that complete
acquisition of offeree shares occurred in 251 of the 271 bids classified as
successful. It could be argued that the choice of fifty percent misclassified
some offerors as unsuccessful, Le., that control can be eKercised without
68

COPYright 2001 ATIRights Reserved
WALTER: TAKEOVERS
There were 271 successful bids where both firms involved were listed, 112
successful bids where only the offeree was listed, 97 unsuccessful bids where
both parties were listed and 92 unsuccessful bids where only the offeree was
listed. Table 4.1 gives the time distribution of bids that were identified.
Table 4.1 is based on the announcement date of a bid, which is assumed to be the
date the bid was first publicly known. These dates were collected from The
Australian Financial Review, as also were the dates on which successful offers
were declared unconditional.
19
Weekly closing share prices, adjusted for changes in the basis of quotation,20
were collected for the period 1 January 1964 to 31 December 1974 for all firms
involved in successful bids and offerors whose bids were unsuccessful. Adjusted
prices 26 weeks either side of the announcement of the bids were collected for
offerees involved in unsuccessful bids. These data were screened for possible
errors by verifying all weekly returns greater than 20 percent in absolute value.
The primary sources for share price data were the official daily lists of the
Sydney and Melbourne stock exchanges. If a firm was not listed on these
exchanges, its share prices were collected from The Australian Financial Review.
The methodology also requires rates of return on a risk-free asset; and
preferably on an asset of one week maturity, since the share price data are
weekly. Such an asset is not readily available in Australia for the period
investigated. As a close substitute, the return on a 13 week (90 day) Australian
Treasury Note, which was the shortest term governmental (and thus virtually
riskless) security on issue during the whole of the investigation period, was
chosen. The time series was supplied by the Reserve Bank of Australia.
4.2 MethodoZogy
The analysis is conducted within the framework of the two parameter asset pricing
model developed by Sharpe (1964), Lintner (1965), and others from the seminal
work of Markowitz (1959). Black's (1972) version of the model states that assets
will be priced in equilibrium according to the following:21,22
majori ty ownership. The empirical importance of this classifying rule could be
assessed by stratification of unsuccessful transactions by proportion acquired.
Data for such a test was not originally collected, and subsequent attempts proved
fruitless.
19. Most Australian takeover bids were made conditional on a minimum acceptance
level (frequently 90 percent, as Australian company law allows compulsory
acquisition of dissenting shareholders' holdings iE 90 percent is achieved). In
such cases the unconditional date is normally the date acceptances total 90
percent, and can be regarded as the ultimate confirmation of the success of the
bid. Australian Associated Stock Exchange Listing Requirements (1978) require
shares of the offeree to be removed when 90 percent acceptance is achieved. This
date is, on average, 15 weeks aEter the announcement date.
20. As is customary with share price relative files, the dividend adjustment was
on a pre-tax basis.
21. For proof of this model see, Black (1972) and Jensen (1972).
22. Tildes (-) denote random variables.
69
WALTER: TAKEOVERS
( 4.1)
where expected (one-period) rate of return on asset i,
expected
weighted
economy,
return
return
on the market portfolio, Le., a
on the portfolio of all assets
value-
in the
expected return on an efficiently diversified portfolio whose
returns are uncorrelated with those of the market portfolio,
and
- - 2-
cov(Ri,Rm)/a (Rm) represents the risk of asset i relative of the total risks
of the market m.
Defining Bi = cov(Ri,R
m
)/a
2
(Rm) the model implies that E(Rit) (the expected
return on an asset i in period t) is equal to E(R
zt
) (the expected return on
a portfolio which is riskless with respect to the market portfolio), plus a risk
premium, that is [E(R
mt
) - E(Rzt)jRit. Thus the relationship between the
expected return on an asset and its risk (covariance with the market portfolio),
predicted by (4.1) is linear. Further cov(Ri,R
m
) is the only term in (4.1)
that is unique to asset i and hence it alone accounts for differences in
assets' expected returns. These predictions have been the subject of detailed
testing.
23
Suppose there exists a risk-free asset, with a single-period rate at which all
investors can borrow or lend unlimited amounts. This yields a special case of
(4.1):24
(4.2)
where Rf = the return on the riskless asset.
Equation (4.2) is stated in terms of expected returns, which must be replaced
with realised returns in empirical applications:
(4.3)
where Uit a residual or the excess return of security i in period t, which
is assumed to be uncorrelated with the market return.
The realised return for a security (Rit) contains
information concerning security i generated during
the return which is not accounted for by the return
securities [captured in Rft, (Rmt - Rft) and ~ t j
residual Uit providing
the total adjustment to
period t. That part of
inter-relationships among
will be observed in the
i. the event being investigated is independent of Rft and Rmt
23. -See, in particular Black, Jensen and Scholes (1972), Fama and MacBeth (1973),
and Ball, Brown and Officer (1976); but see Roll (1977).
24. See, Sharpe (1964) and Lintner (1965).
70
WALTER: TAKEOVERS
ii. the relative risk of security i is not affected by the event being
i nves tigated.
If takeover act ivity were not independent of general market movements, the
disturbance term could not be interpreted as capturing entirely the reaction of
share prices to the specific event being investigated. Since it has been
suggested that high takeover activity is associated with buoyant market -wide
conditions,25 the observed distribution of takeover bids per week is presented
below.
26
There are indications in Table 4.2 that there is some peaking of takeover
activity in the data; and therefore that there are dependencies through time.
27
The question of independence between takeover activity and market returns was
also investigated through correlation analysis. The frequency of takeovers in
the 28 three-month periods for which data were collected was correlated with
Rft, Rmt and (R
mt
- Rft). The derived Pearsonian correlation coefficients were
-0.02, 0.10 and 0.10 respectively. None of these is significant at the 5 percent
confidence level. Thus while takeover activity is associated with time, the
independence assumptions needed to estimate (4.3) are probably sufficiently well
met for the purposes of this study.
There is evidence to suggest that takeovers are associated with changes in
risk.
28
This can be expected as a takeover normally results in changes in
financial gearing and the asset mix. To allow for possible risk changes, ~ i t
is estimated using rates of re turn for the period (t -n*) to (t -1), where n* is
the number of rates of return used to estimate ~ i t 2 9 via equation (4.4).
R - R
i,t-n f,t-n
(4.4)
n 0, 1, 2, , n*
25. See, Nelson (1959), Bushnell (1961), Walker (1973), Kuehn (1975), and Stewart
(1977).
26. Table 4.2 summarises 479 bids, whereas the total number of bids investigated
in this study is 572, which includes multiple bids for the same offeree. The
data in Table 4.2 exclude a bid by a different offeror for an offeree which had
received a bid in the previous 10 weeks.
27. A chi-square statistic was calculated under the null hypothesis that
takeovers were generated independently through time according to a Poisson
process. The resultant chi-square statistic was 15.7. Were the null hypothesis
true, the probability of observing a sample chi-square statistic of 15.7 or more,
is less than 0.005.
28. See, Mandelker (1974), Dodd (1976) and Ellert (1976).
29. The optimal estimation period n* was determined by examining the mean
prediction errors, mean squared prediction errors and mean absolute prediction
errors for various n in the range 20 to 175 using all data in the file. These
results indicated there is little to choose between estimates using 50 and 100
weekly observations. The results reported below employ estimates of ~ using
the 100 prior observations. Note however that results are robust with respect to
~ estimation techniques. See, for example, Walter (1980), Appendix B.
71
WALTER: TAKEOVERS
The estimated systematic risk coefficient in (4.4), Bit' was calculated using
ordinary least squares regression. The (finn-specific) excess return in period
t is then given by:
(4.5)
Excess returns are averaged across securities for each week 't, which is defined
relative to the week in which a takeover bid is announced. Week 't, which is
not the same chronological week for all securities, is allowed to vary over a
range (such as 100 weeks before and after the week in which the event takes
place). That is,
AR
't (4.6)
where N is the number of takeover bids. Average excess returns are then
cumulated through the period investigated (from k weeks prior to the event date
to the end of any period 't), so that:
CAR
't
't
l: AR
t=-k 't
(4.7)
It is noted that the methodology carries with it two important qualifications:
a. three hypotheses - that (4.3) is descriptively valid, that the market is
efficient, and that takeovers have infonnation content - are jointly tested;
and
b. theoretically, Rm is the value-weighted index of ex ante one-period
returns on all assets in the economy.
In empirical investigations, a surrogate index must be used. The index chosen
for the results presented below is an equally weighted average of all rates of
return in the file, with the following exclusions:
i. for offeree companies, data for the 26 weeks prior to a takeover
announcement are excluded; and
ii. for offeror companies, data for the three years prior to a takeover
announcement are excluded.
There are, on average, 193 rates of return per week in this index. Dodd (1976)
reported excess positive returns of 37.1 and 25.3 percent over the six months
prior to a bid's announcement for the 58 acquired and 14 not acquired firms
respectively.30 His results were relied on for the exclusion period for offerees.
The offeror exclusion period was based on an inspection of the CAR and ARs for
all offerors and successful offerors derived under the assumption that fl=1.
31
These results revealed that offerors experienced excess positive returns over a
30. Prior to the six IIDnths, the monthly ARs were "small" and independently
distributed around a mean of zero.
31. In the absence of information about a specific security, this assumption
provides an unbiased estimate of its relative risk. The index used for this test
employed data for a random selection of 50 finns and is described in Brown and
Walter (1974).
72
OOl'yligl,t@2881 All Rigl,ts Reseived
WALTER: TAKEOVERS
period of approximately three years prior to a takeover announcement. This
period was excluded in the calculation of the index to compensate for the
systematic selection bias which exists in the total data file.
5. RESULTS: OFFEREES
Results are presented in this and the next section, in a standard format, as
follows.
a. A table is given which contains the Average Residual (AR) , the Cumulative
Average Residual (CAR), the total number of observations
32
in the AR, the
number of negative and positive residuals (excess returns), a z-statistic
and its related binomial probability (discussed e l o w ~ ~ and the average beta
of firms that have a residual in a particular period.
b. Two figures are included, the first of which presents the time series plot
of the CAR, and the second of which gives the time series plot of the
estimated beta of shares in the category irrespective of whether they have a
residual in a particular period.
34
c. There is a table of summary statistics from the Wilcoxon test (discussed
below)
d. The results in (a), (b), and (c) are discussed.
Signifioonce Tests
The statistical significance of the sign of the week-by-week residual is
determined using a binomial test.
35
As the number of observations increases, the
binomial distribution (the sampling distribution of the proportions observed in
random samples drawn from a two-class population) tends towards the normal
distribution.
36
For a population having equal proportions of positive and negative residuals, the,
reported probability is that of the sample proportion of positive residuals
differing from 0.5 by at least as much as the difference observed.
32. The number of observations is generally less than the population size because
of missing price relatives.
33. These are calculated using the 100 previous rates of return.
34. This procedure was adopted to prevent
introduced into each moving be ta series. Note
conducted on the mean of the estimated betas
offerees and offerors, and accordingly statements
only to the calculated averages.
artificial fluctuations being
that no significance test was
for the various categories of
about movements in beta relate
35. The test is described in Siegel (1956, pp.36-42).
36. Mood and Graybill (1963). The approximation is generally
reasonable when the number of observations is greater than 25.
(1956).
73
regarded as
See, Siegel
WALTER: TAKEOVERS
It could be debated whether the null hypothesis is appropriately one of equal
proportions. Brown and Hancock (1977) report that 49.4 percent of the non-zero
daily rates of return in the 4 days preceding and 5 days following the effective
announcement date of a profit report are positive. Similarly Brown, Kleidon and
Marsh (1980) report that 46.5 percent of the CRSP daily excess returns are
positive. The conclusion is that the binomial test as applied may be biased in
favour of rejecting the null hypothesis, because the population proportion of
positive excess returns is possibly slightly less than a half. Any bias will be
small, because it can be shown that the binomial test is not particularly
sensitive to moderate changes in the population proportions.
The Wilcoxon test is applied to test the significance of the observed movements
in the CAR over longer time intervals. A major purpose of this study is to
estimate the effect of takeovers on shareholder returns. As explained in the
previous section the methodology used involves averaging excess returns
calculated according to equations (4.5) and (4.6). Because these excess returns
are ex post observations of random variables, the average alone is not sufficient
to reach inferential conclusions about the true mean. A significant test is also
needed.
The parametric t-statistic is not obviously appropriate in this context because
it seems unlikely that excess returns are identically distributed across time and
across securities.
37
The significance test adopted here is the non-parametric
Wilcoxon Matched-Pairs Signed-Ranks Test (hereinafter the Wilcoxon test). The
Wilcoxon test does not assume identically distributed returns, though it does
assume independence and symmetry.38
The Wilcoxon test involved the selection of two control shares
39
for each share
involved in a takeover offer (the sample firm). Each sample share is matched
with a control portfolio such that they are of identical risk. Under the
assumption that the sample share's involvement in a takeover offer was the only
systematic difference between it and the control portfolio, the difference
between their cumulative rates of return is an unbiased estimate of the effect of
the takeover. For estimation efficiency reasons it was deemed that each share
must
t. have at least 90 percent of its price relatives available over the
investigation period, and
37. See, Ball, Brown and Officer (1976). Since the computing was conducted for
this paper accepted methods of statistical analysis have undergone considerable
change. This change towards the use of t statistics in significance testing can
be attributed to the analysis conducted by Brown and Warner (1980).
38. See, Siegel (1956, pp.75-83). The test is applied to continuously compounded
returns to conform better with the symmetry assumption. Cf. Brownlee (1956).
39. Two acceptable control shares (the ones with ~ i immediately above and below
the sample) were used for each share, to guarantee estimated betas that were
identical. This procedure was adopted to overcome a possible problem in applying
the Wilcoxon test: matching of control and sample shares on ~ i may result in
significant differences in average betas occurring by chance. The weights used
to equate portfolio estimated betas with sample ~ i S were applied to individual
control security returns to determine the weekly return of the control portfolio.
74
WALTER: TAKEOVERS
ii. not be involved in a takeover offer in the period 100 weeks either side of
the sample share's announcement date before it was considered acceptable as
a control share.
The null hypothesis is that the sample and its control are drawn from the same
population, and the Wilcoxon probability reported is the (two-tailed) probability
of observing the (signs and ranks of the) cumulative rates of return on the
sample shares and their respective controls, if the null hypothesis were true.
These probabilities are reported for
1. the period -100 to -1, that is, the pre-announcement period excluding the
announcement week;
ii. the period -100 to 0, that is, the total pre-announcement period including
the announcement week; and
iii. the post announcement period, that is, +1 to +20 (for offerees)40 and +1 to
+100 (for offerors).
In addition, the number of cases in which acceptable pairs were found and the
difference in the average return between each sample and control portfolio are
reported for each investigation period. When the difference in the average
return is multiplied by the number of weeks in the investigation period, an
alternate (to the CAR) measure of excess returns is derived.
41
Results are presented for the following groups of offerees:
1. All 572 offerees which received a takeover bid during the investigation
period, that is, from 1 January 1966 to 31 December 1972 (Table 5.1.1).
2. All 383 offerees which were successfully acquired
42
(Table 5.2.1).
3. All 189 offerees which were not acquired (Table 5.3.1).
40. The Australian Associated Stock Exchange Listing Requirements stipulate an
offeror must notify the exchange as soon as acceptances reach 90 percent. The
shares of the offeree are then removed from trading. Consequently, the number of
firms for which data exist, in the category of successfully acquired offerees,
drops from 215 on announcement to 51 in week +20. See Table 5.2.1.
41. While the Wilcoxon test is unbiased, the cumulative mean difference between
the sample and control rates of return (i.e., the "sample return less pair return
averaged" - refer tables, following) can depart substantially from the CAR
computed over the same period. The reason is that the variance of the CAR is
approximately N times the variance of the AR, where N is the number of weeks
over which the series is accumulated. Since the variance of the AR varies
inversely with the number of shares used to compute it, departures can be
"substantial" in small samples. See, for example, Table 6.3.1 and 6.3.2.
42. Success is defined as gaining control of more than 50 percent of the
outstanding ordinary shares of the offeree.
75
WALTER: TAKEOVERS
5.1 All O f f e ~ e e
Table 5.1.1. presents results for 572 separate bids where a separate bid is
defined to include the case of a different offeror bidding for the same offeree.
The CAR accumulates 5.5 percent in the period -100 to -10. In this period 45 of
the ARs are negative, 46 are positive. In 8 of the 91 weeks the z-statistic for
the binomial test is significant at the 0.05 confidence level; perhaps not
surprisingly, the proportion of positive residuals is less than half in each of
the 8 cases.
In contrast, the ARs in the period -9 to -0 are uniformly positive; four of the
z -statistics are significant at the 0.05 confidence level. The CAR rises 27.7
percent during this period; 12.9 percent of this rise occurs in week O. Eighty
percent of the residuals in week 0 are positive. Indeed, the probability of
observing the disproportionately high number of positive residuals in either week
-lor week 0 is very close to zero. Note that the binomial test in this case is
if anything biased against rejecting the null hypothesis.
After a period of "about normal" return (in the period -90 to -40 the CAR
declines one-half percent) offerees show sharp rises in excess positive returns.
The Wilcoxon test indicates that the probability of the difference between the
sample and control excess returns being as large as that observed under the null
hypothesis that each sample and its control are drawn from the same population,
is less than one in one thousand.
Some of the average excess return in the immediate pre-announcement period is
explained by the entry of competing offerors.
43
The results in Table 5.1.1 relate
to 572 separate bids, where a separate bid includes the case of a different
offeror bidding for the same offeree.
44
The average excess return may also in
part be associated with market purchases by the offeror prior to the announcement
of the bid, or to investor anticipation of an imminent offer. Takeover bids
undoubtedly involve a period of planning by the offeror and information may be
released during this planning stage.
After a takeover bid announcement the CAR increases by a further 1.9 percent of
which 1.5 percent occurs in week +1. The week +1 residual could be associated
with non-trading.
45
If a bid is announced in a particular week after the last
sale in the data file, the residual of week +1 captures the market adjustment to
information which became available in week O. Thus a positive AR in week +1,
even were it significant, should not be regarded as evidence of a slow reaction
to the news of a takeover bid. In any event the Wilcoxon test computed
probability of 0.433 for the period +1 to +20 suggests that any differences in
return between the sample shares and their respective controls could easily be
due to chance. Further, no z-statistic in this period is significant at the 5
43. Eliminating competing offeror bids (made in the previous 50 weeks) for the
same offeree reduces the number of cases in this category to 442. This results
in vi rtually no change to the general tenor of the reported sample, save the
obvious reduction in numbers of observations. These 'single bid' results are
available on request to the author.
44. There were 93 cases in which there was a bid by a different offeror for an
offeree which had received a bid in the previous 10 weeks (refer Table 4.2).
45. Non-trading in week 0 will bias the Wilcoxon test towards rejection of the
null hypothesis in the period (+1; +20).
76
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WALTER: TAKEOVERS
percent confidence level.
The time series plot oAf the moving beta series (Figure 5.1.2) reveals 11 ttle
change in the average for this group.46 Average computed beta varies between
0.92 and 0.87 in the pre-announcement period and falls to 0.82 by week +20.
A final comment concerns evidence available which confirms the appropriateness of
the exclusion criterion used to estimate the systematic risk of offerees (26
weeks of data prior to an offer were excluded). The proportion of positive
residuals for offerees in the period -100 to -53 was calculated, and this was
assumed to be the population proportion for the purposes of a binomial test on
the observed proportions in the subperiods -52 to -27 and -26 to O. The
resultant z-statistics were 0.57 and 7.56 respectively, leading to rejection of
the null hypothesis at the 5 percent confidence level for the latter sub-period,
but not for the former.
5.2 SueeessfuZ Offepees
Table 5.2.1 present offeree results for 383 successful bids. Uncanny investor
foresight would have to be assumed for us to claim that the success of the bid
was determined at the bid announcement date. Hence much of the discussion which
follows must be hedged carefully. It is worth nothing that there are instances
of bids by unsuccessful offerors preceding successful bids.
47
The pattern of the CAR is similar to that of Table 5.1.1. The CAR rises 7.2
percent during -100 to -10, and by a further 28.0 percent from -9 to 0 (the AR in
week 0 is +13.5 percent). There are only seven weeks out of ninety weeks in
which the proportion of negative residuals significantly exceeds half at the 5
percent significance level over the period -100 to -10, but there are four out of
ten weeks in which the proportion of positive residuals significantly exceeds
half in the period -9 to 0, at the 5 percent significance level. The Wilcoxon
probability over the period -100 to 0 is again less than .0005. Presumably this
is mainly due to the behaviour over the period -9 to O.
The CAR rises a further 1.7 percent in the period +1 to +20, 1.5 percent of which
occurs in week +1. Non-trading cannot be ruled out as an explanation of the week
+1 AR. The Wilcoxon test yields a probability of 0.596 that the results could
have been observed were the control and sample drawn from the same population.
The binomial test yields no instances of disproportionately positive residuals in
this period, that are significant at the 5 percent level.
5.3 UnsueeessfuZ Offepees
Table 5.3.1 reports results for 189 offerees where the bid was eventually,
despite revision and competition in some cases, unsuccessful. 48,49 Over the
tests on beta-shifts were not conducted.
47. Eliminating those cases of previous (unsuccessful) bids in the prior 50 weeks
reduces the sample size to 353. Not surprisingly (given only 30 eliminations)
these single bid results are almost identical.
48. Exclusion of bids for the same offeree in the previous 50 weeks in cases of
revision or competing offeror involvement reduces sample size to 89. Non-trading
and the data collection procedures described in fn 49 below cause available
observations to be less than 20, and comment seems inappropriate. See also
fn 53.
77
WALTER: TAKEOVERS
period -100 to -30 the CAR declines 7.3 percent, and then rises 27.4 percent in
the period -29 to O. After a period of excess negative returns this groups
experiences considerably improved returns. The AR in week 0 is +10.2 percent,
compared to 13.3 percent excess return for offerees successfully acquired. For
unsuccessful offerees the binomial probability in week 0 is in contrast with that
of Table S.2.l. Approximately 40 percent of the residuals in week 0 are
negative
SO
for offerees not acquired, compared to approximately 17 percent for
those acquired. There is some suggestion in this comparison of differential
investor reaction. The Wilcoxon statistic does not lead to the rejection of the
null hypothesis at the S percent level, in contrast to the binomial test, and to
the results for acquired offerees.
The CAR rises 2.8 percent over the post-announcement period; 2.1 percent of the
rise occurs in week +1. By week +S the CAR rises S.4 percent and then declines
2.6 percent by week +20. This rise and subsequent decline could be explained by
bids being revised upwards, followed by share price declines as the unsuccessful
outcome of the initial bid and its subsequent revisions ultimately becomes known
to the market.
Sl
This explanation cannot be offered with any assurance, as there
are competing informational cues flowing to the market in the post-announcement
period.
52
Despite the bids' lack of success (recall that hindsight is used in making this
judgement), the CAR does not decline in the overall post-announcement period.
Thus unsuccessful bids must convey, or prompt the conveyance of, information
49. Data collection for this group was limited to 26 weeks either side of the
announcement but results are presented 100 weeks prior to announcement as many of
these offerees are in other takeover categories, I.e. they either make bids or
are not acquired in other takeover offers. Further, non-trading (this category
contains many "smaller" companies) reduces the number of available observations.
so. Corresponding figures for weeks -2 and -1 are 30 percent and 24 percent
respectively. Both are significant at a = O.OS.
Sl. Revisions occurred in 17 percent of cases where a bid was eventually
successful, and in 16 percent of cases where it failed. Corresponding figures
given by Walker (1973) are 14 percent and 21 percent. While the data for this
study suggest that revisions do not occur more frequently for unsuccessful bids
(and that the expectation of a revision is a fair game for all offers), there is
eVidence in Walker's data that revisions are expected more frequently in ex post
unsuccessful bids.
S2. There are 43 firms of this category where only one unsuccessful bid was
received in the period 50 weeks either side of the identified bid date. However,
due to non-trading, the number of available residuals for this "single-bid" group
is on average less than ten. In the period -100 to -40 the CAR declined 10.S
percent, and then rose 43.3 percent to be +32.8 percent at time 0 (18.5 percent
of this rise occurred in the announcement week). By week +20 the CAR was +22.7
percent, which is consistent with a "rational revisions of expectations of
eventual takeover" hypothesis. Note however, these results depend on
considerable hindsight and further, a fair game cannot be constructed for firms
so identified. It is not until the end of the 50 week period that it is known a
competing bid was not made, and this identification with hindsight violates the
fair game model.
78
COpyi igl it @ 200 I All ~ i g r l l F<eselveC!
WALTER: TAKEOVERS
which causes permanent revisions to share prices. If we characterise a share's
price as being set by the market in accordance with some prior distribution of a
future successful bid being received, then the receipt of an unsuccessful bid
causes a shift in this prior distribution. Walker (1973, p.9) reported that
"approximately 38 percent of companies listed on the Sydney stock exchange at
some stage during 1960-1970 were subject to a bid during that eleven year
period". Of the 189 unsuccessful bids in Table 5.3.1, 112 are, within a period
of two years, followed by successful acquisitions.
53
Based on these relative
frequencies plus our knowledge that two in three of the bids studied are
successful, there is a probability of .38 that a successful bid will be received
in a one-year period conditional upon an unsuccessful bid having just been
rejected; while the unconditional probability of a successful bid being received
over the same period is less than a tenth as great.
The time-series plot of average moving beta (Figure 5.3.2) depicts a pattern
similar to that of the two previous offeree groups. Average estimated risk
varies little throughout the investigation period.
Conclu8ion8 fop Offepee8
Typically shareholders of offerees, after experiencing a period of average or
below average investment performance, enjoy excess positive returns over the 20
weeks up to and including the takeover announcement week. Most of these gains
accrue in the announcement week. Following the announcement, returns consistent
with a rapid and unbiased adjustment to new information released in the takeover
announcement, are observed. These results are consistent with the evidence
provided by Dodd (1976), Bradley (1977), Dodd and Ruback (1977) and Firth (1978).
Over the investigation period there is "little" change in the
relative risk to offeree companies. Estimated risk varies
percent for all of ferees over the pre-announcement period.
exist for the acquired and not acquired categories.
Implication8 fop Takeovep Hypothe8e8
i. The Efficient Mapket Hypothe8i8
estimated average
by less than six
Similar patterns
Capital market efficiency with respect to takeover announcements is primarily
concerned wi th the behaviour of pos t -announcement res iduals. 54 Capi tal ma.rke t
53. For these 112 the CAR (calculated by setting equal to one to overcome
some data shortage problems) rises by 4.2, 0.9, 4.9, 8.6, and -0.8 percent
respectively in each of the 10 week periods following announcement. For the 77
which were not subject to a successful bid corresponding 10 week post-
announcement CARs are -2.5, -1.9, -9.0, 3.3 and 2.7 percent. Over this 50 week
period the subsequently acquired group CAR rises 17.8 percent, compared to a 7.4
percent fa1l for the not acquired group. Clearly fair game implications are
violated here but these results shed some light on whether efficiency gains
result from attempted takeovers. In this context note that the rise in the CAR
for the 77 firms in the 10 week pre-announcement period is 26.6 percent, and, by
implication, some permanent gains are evident.
54. Pre-announcement residual behaviour is of some interest in that it can be
used to determine when information flows to the market. Takeover bids are
planned by management of the offeror over some period prior to public release.
In many cases the of feree' s management i.s invo 1 ved 1n pre -announcemen t
79
WALTER: TAKEOVERS
efficiency implies that market prices reflect all publicly available information,
consistent with a theory of market price equilibrium. Provided there is no ex
post sample bias induced either by the estimation methods or by the impact of
information released subsequently to the bids, the observed post-announcement ARs
should be independently distributed around a mean of zero. They were.
ii. Hypotheses
The gains experienced by offerees are maintained, irrespective of bid outcome, in
the post-announcement period. These offeree results are consistent with the
Internal Efficiency Hypothesis, where offerees are presumed to own unique
resources. Information on the availability for sale of these unique resources
causes offerors to compete for control of the offeree through acquis\tion.
There is evidence in the pre-announcement ARs and CAR that these unique resources
may be under-utilised or inefficiently managed assets. 55 Offerees experience
negative excess returns over periods of approximately 50 weeks in the pre-
announcement period.
56
Whatever these unique resources may be, the announcement
of a takeover offer conveys information concerning the offeree, regardless of the
outcome of the offer.
The permanent gains from unsuccessful bids is an empirical implication of the
Internal Efficiency Hypothesis that allows it to be distinguished from the
traditional takeover hypotheses, under which gains are conditional on a
successful acquisition. The results give some indication of permanent gains to
all offeree categories and are thus not consistent with the empirical
implications of the traditional synergy and monopoly rents arguments.
6. RESULTS: OFFERORS
This section discusses the results for offerors
57
in the following categories:
1. all offerors, irrespective of the outcome of the offer (368 cases);
2. offerors whose bids are successful (271 cases);
negotiations. If a market is efficient in the "strong" form, news of a takeover
would be impounded into prices prior to its public release. That there are some
anticipatory price increases prior to the official release can be taken as an
argument that the market is able to discover some information prior to its public
release. However, the concern here is with testing the EMH in its "semi-strong"
form.
55. A special case of the Internal Efficiency Hypothesis is that takeovers are a
means of disciplining inept management. See Manne (1965) for an exposition of
this argument.
56. For category (a) (572 offerees) the CAR declines from 0.015 to 0.010 over the
period -90 to -40; for category (b) (383 acquired companies) the CAR declines
from 0.020 to 0.012 over the period -89 to -44; for category (c) (189 offerees
not acquired) the CAR declines over the period -100 to -30 by 7.3 percent.
57. The post-announcement investigation period for offerors is extended to 100
weeks; in other respects the results follow the format described for offerees.
80
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WALTER: TAKEOVERS
3. offerors whose bids are unsuccessful (97 cases).
In addition summary results for various sub-categories of the population of
successful offerors are presented. These sub-categories were drawn to offer
additional evidence on the anomaly reported by Dodd (1976).
6.1 All
The CAR for all 368 offerors accumulated 30.7 percent in the period -100 to O.
There are thirteen significant (at ex = 0.05) binomial probabilities in this
period, eight of which are associated with excess positive residuals. The
Wilcoxon probability is less than 0.001, which indicates that it is extremely
unlikely that the results are due to chance. The pre-announcement offeror CAR
contrasts the offeree results, as too does the week 0 Average Residual (AR) of
-0.3 percent. In the announcement week the computed binomial probability of
0.85, again is in contrast to the offeree result. There is no evidence of
positive excess returns for offerors on the announcement of a takeover offer. In
the 100 week post-announcement period the CAR rises a further 2.0 percent, but
the Wilcoxon test does not indicate any systematic difference between sample and
control at the 5 percent confidence level.
The average for this group rises over the period, by approximately 11
percent: from approximately 0.98 at week -100 to 1.04 per week 0, and 1.09 at
week +100.
6.2 Sueeessful
Table 6.2.1 summarises the results for 271 offeror firms which acquire the bid-
for offeree.
58
The CAR rises over the period -100 to 0 to 28.2 percent. In this
period twelve binomial probabilities are significant at ex = 0.05; eight of them
are associated with excess positive residuals. The Wilcoxon test indicates that
the pre-announcement CAR behaviour is highly unlikely to be observed were the
null hypothesis true.
In the period +1 to +100 the CAR declines 1.5 percent with four binomial
probabilities significant at the 5 percent level, all associated with negative
residuals. The computed Wilcoxon probability is .084.
59
Despite this "relatively
low" Wilcoxon probabili ty, the ARs in this period are "small". Moreover, 48 are
positive and 52 are negative.
0 is the date a takeover bid was announced. Recall that, for a
definitive test of capital market efficiency for successful offerors, residuals
should be cumulated either side of the date of public knowledge of the offer's
success. The results derived using the unconditional (I.e. 90 percent
acceptance) date are similar to those reported in Table 6.2.1. This
unconditional date in many cases occurs after the effective public knowledge
date, as the release of percentage acceptance figures allows the predicti.on of
success prior to its ultimate confirmation. The unconditional date on average is
15 weeks after the bid's announcement.
59. The sample return less the pair return averaged per period was -0.0005. This
implies a 5 percent greater return for paired firms over the 100 weeks, compared
to only 1.5 percent using the Rf version of the market model.
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WALTER: TAKEOVERS
In the period -1 to +1 the CAR declines 1.3 percent. This adjustment is
consistent with the hypothesis that the identification or confirmation of a firm
as an offeror is on average viewed as a disappointment.
60
When it makes a
takeover offer, an offeror simultaneously releases information that it is not an
offeree and that it will not participate that week in the excess positive returns
offerees typically experience when they receive a takeover offer. Ceteris
paribus, survival could be viewed as a disappointment! The negative ARs in week
o and +1 are consistent with such a "survival disappointment hypothesis".
Further, the slight though statistically insignificant drift in the post-
announcement CAR can be explained by continued survival and further takeover bids
by surviving offerors.
61
Given that offerors on average earn zero or slightly negative abnormal returns in
the results discussed to here, cross-sectional statistics on offeror returns in
the post-announcement period are presented in Table 6.2.3.
The point at issue here is an expectation that different returns will accrue to
different offerors reflecting market expectations as to firm specific synergistic
benefits from the takeover. For example, it may be expected that firms which
have a history of acquisitions will exhibit different abnormal returns to those
that make rare acquisitions, as expectations di f fer acros s the groups. From
Table 6.2.3, even though announcement week returns are on average negative, 30
percent of those offerors have excess positive returns of greater than 1.33
percent, while 10 percent have positive excess returns greater than 4.38 percent.
Clearly, some takeover announcements are viewed as good news for offerors. For
the takeover period, i.e. from announcement date to the lIDconditional date, 50
percent of offerors have positive abnormal returns.
The average ~ rises over the Whole period (-100 to +100) by approximately 10
percent. The post-announcement rise of seven percent occurs despite the
acquisition of shares with lower systematic risk
62
(the average Ili of offerees
at week 0 is approximately 0.87). Galai and Masulis (1976) demonstrate, among
other things, that the systematic risk of a firm's equity is a positive function
of the firm's leverage, as shown by Hamada (1972), and a negative function of the
value of the firm, the riskless rate of interest and the variance of the firm.
Further, the merger of two firms with less than perfect correlation of returns
will decrease the variance of the new (combined) firm. Hence systematic risk of
a combined, lower variance firm can exceed that of the merging parties.
60. ITall share prices for all firms included in an index are available, then
the average residuals of all firms over all periods covered by the index (derived
from a market model regression) must by definition of the ordinary least squares
regression technique, sum to zero. Given that there are firms in the index with
positive excess returns associated with (say) receipt of takeover bids, then
other firms not receiving bids must have, on average, negative residuals.
61. For example, Sla ter Walker Securi ties (Austr!Jlia) Limited, Dunlop Australia
Limited and Industrial Equity Limited made ten, nine and eight successful bids
respectively.
62. The systematic risk estimates of offeror companies may be biased towards
zero, due to the non-trading effect being greater for smaller companies. See
Dimson (1979).
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WALTER: TAKEOVERS
6.3 Unsuccessful Offepops
Table 6.3.1. presents results for 97 offerors whose bids are eventually
rejected.
63
The CAR rises 44.0 percent in the period -100 to 0 and then rises an
additional 21.3 percent in the period +1 to +100. Were the null hypothesis true,
the (Wilcoxon test) probabilities of observing results at least as strong as
these are 0.003 and 0.006 respectively. Unsuccessful offerors in the pre- and
post-announcement periods are thus inferred to earn returns that are
significantly greater than the control firm returns. Yet the week-by-week
Binomial probabilities behave as expected. In the pre-announcement period four
are significant at a: = 0.05 (one associated with excess negative residuals and
three with excess positive residuals); in the post-announcement period six are
significant (three associated with excess positive residuals and three with
excess negative residuals). The data files were checked for the incidence of
post-bid announcements that could explain the post-bid pattern of returns.
The following post-bid announcements
64
were made in the period +1 to +100 by the
97 unsuccessful offerors:
i. 57 firms made at least one bonus or rights issue. There were (58) separate
bonus issues and 24 rights issues altogether;
ii. 15 firms were themselves either acquired (12) or received bids (3) for
complete acquisition;
iii. 2 firms announced returns of capital to shareholders;
iv. 23 firms did not make announcements of the above nature. Of the 23, 15
announced dividend increases, two announced dividend reductions and six made
no change.
The dividend files reveal that of the 88 firms for which dividend histories exist
(9 firms were acquired before the next dividend payment was due):
63. Note that results here are for 100 weeks either side of the announcement date
of a takeover. This date is hardly likely to be the data of public knowledge
that "Company x is an unsuccessful offeror". Since the "unsuccessful" label is
attached with hindsight, these results are not derived in the context of a fair
game. Unsuccessful offers typically involve protracted negotiation periods, in
some cases extending more than two years. Further, the date of public knowledge
cannot be pin-pointed with any assurance; several percentage acceptance figures
are released in the post-announcement period, and it is probable that, like
success, failure was predictable prior to the eventual withdrawal date in many
cases. Again, although offeree company directors' recommendations to
shareholders are closely related to a bid's final outcome [Walker (1973) found
that 92 percent of the takeover bids studied succeeded or failed in accord with
directors' final recommendations], those recommendations do change during
negotiations (Walker (1973) reports 38 instances (15 percent of all reject
recommenda t ions) of di rectors' recommenda t ions changi ng from "reject" to
"accept").
64. The term "announcement" is used somewhat loosely. The data files contain
ex-dividend and rights dates rather than actual announcement dates. However most
of the announcements would have been made in the post-bid period.
83
WALTER: TAKEOVERS
i. 63 firms increased dividends at least once in the 100 weeks post-bid:
ii. 13 made no change (5 of these did not pay any dividends):
iii. 6 increased dividends and subsequently reduced them:
iv. 6 reduced dividends.
All of the above announcements are captured in the residuals for the post-
announcement period and are associated with positive excess returns for the
re<;pective populations of all such announcements: Ball, Brown and Finn (1977)
find positive excess returns of 20.2 percent for bonus issues and 9.7 percent for
rights issues in the twelve months prior to announcement: offeree positive excess
returns are approximately 30 percent in the 20 weeks prior to a takeover
announcement; and Brown, Finn and Hancock (1977) report gains of 17.1 percent
over the year prior to a dividend increase announcement, and losses of 22.4
percent for dividend decreases.
Before the informational releases described above can be offered as an
explanation of the post-bid excess returns, it must be shown that they occurred
more frequently than expected in a fair game: that is, that they occurred more
frequently than expected for offerors in general until such time as progress on
the bid allows categorisation of an offeror as unsuccessful: and from then,
showing that in the time period studied (1966-1972) they occurred more frequently
than expected for the population of all unsuccessful offerors. To shed some
light on this expectation the unsuccessful offerors were split into two groups,
comprising
i. the first of 48 bids, and
ii. the later 49 bids.
The split of information releases is considered in Table 6.4. Assuming the first
half proportions are expectations for the second half bids, then the conclusion
from Table 6.4 is that we should not reject the null hypothesis (that the
observed second half proportions were drawn from a population with proportions
equal to those in the first half). The implication of the conclusion is that the
anomalous behaviour is not due to the "seemingly large amount of good news".
The explanation appears to be that the sample is dominated by the inclusion of
Industrial Equity Ltd. (IEL) at a critical point in that company's extraordinary
history. IEL made 10 unsuccessful bids in the period studied (and 8 successful
bids). The average positive excess return of lEL over the period (+1, +100) was
84.97 percent.
65
lEL's impact on the aggregate results for the 97 unsuccessful
offerors (calculated over the 43 companies for which returns could be calculated
on average each week) was to increase the CAR for (+1, +100) by 19.84 percent.
Thus only 1.5 percent of the post-announcement rise of 21.3 percent is not
associated with the inclusion of lEL.
That the revealed post-announcement behaviour of the CAR is dominated by extreme
outliers is further confirmed by considering the signs of the residuals over the
whole of the post-announcement period. Over this period there are 1967 positive
residuals and 1975 negative residuals. Using an expected equal proportion of
calculation for lEL's impact on the CAR for successful offerors
yields, +0.83 percent, which does not alter the tenor of the results.
84
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WALTER: TAKEOVERS
positive and negative residuals, a Binomial probability of .90 suggests extreme
outliers have dominated the results.
Conclusions for Offeror Categories
Offerors experience positive excess returns throughout the investigation period
prior to a takeover announcement. This result is consistent with the direction
but not the magnitude of excess returns reported by Mandelker (1974), Dodd
(1976), Ellert (1976) and Dodd and Ruback (1977). Successful offerors experience
gains of approximately 14 percent per year over the two years prior to a bid
announcemen t .66
The average rises for all offeror categories over the investigation period,
despite the acquisition of offerees with lower average Changes in estimated
risk are also found for unsuccessful offerors. If the sample estimates are
correct, then the repackaging of the firm's financial characteristics, typically
associated with a takeover, could explain the increasing systematic risk.
ImpZieation Hypotheses
i. The EMH
The post-announcement analysis reveals no significant evidence of excess returns
to offerors following their bids, and is consistent with Mandelker's risk-
adjusted result. Dodd's result again contrasts the post-announcement period
results of this study. The 136 successful offerors studied by Dodd have excess
negative returns of seven percent per year in the two years following the bid,
results which are anomalous with respect to market efficiency, provided the
announcement predates the negative returns. That anomaly is not present in this
study.
Unsuccessful offeror post-bid results also contrast the evidence of Dodd.
Positive excess returns of 10 percent per year are reported here; Dodd reports no
systemati.c excess returns from month +2 to +24, after an abnormal loss of four
percent in month +1. The unsuccessful offeror results in this study are
explained by extrerne outliers. An unambiguous comment on market efficiency
cannot be made since the realisation of the unsuccessful outcome of a takeover
bid occurs some time after its announcement.
ii. RetuPn Hypotheses
In an acquisition market where offerors actively compete for control of unique
resources of of ferees, the cons ideration payable (inc luding the takeover costs)
by the offeror will equal the competitive equilibrium worth of the assets
acquired. A takeover is viewed no differently (for the offeror) from any other
form of investment in a competitive market: the expected return is commensurate
with the level of risk inherent in the acquisition. Bargain acquisitions cannot
be expected in such a market.
Suppose of feree firms have unique, under -utili sed resources which are freed mos t
efficiently by a takeover.
67
Prior to a takeover offer, offerees' share prices
66.-rnccintrast, Dodd (1976) finds a negative excess return of four percent
followed by a positive excess return of nine percent in the two one-year periods
prior to announcement.
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WALTER: TAKEOVERS
will reflect expected returns from existing management's control of these assets
and some prior probability of higher returns from a takeover; the takeover
announcement causes excess positive returns to go to offeree company
shareholders, via the increased prior probability that a takeover will eventuate.
The successful offeror results are consistent with the implications of the
Internal Efficiency Hypothesis. Typically, offerors have positive excess returns
prior to a takeover and look to takeovers as a means of further investment.
There is no evidence of excess returns in the announcement week or in the post-
announcement period for successful offerors, whereas significant gains are won by
offeree shareholders in the announcement week. Assuming investors do not
anticipate a bid, which seems reasonable given the pre-bid behaviour of excess
returns for of ferees, the evidence of normal of feror returns on announcement and
thereafter suggests that offerors face a competitive market for company
acquisitions.
68
In other words the postulated positive excess offeror returns of
the traditional takeover hypotheses are not present.
Given that bids are not cos tless to offerors, 69 why are unsuccessful offerors
rewarded with positive (rather than negative) abnormal returns from the bid
date?70 As a corollary, why do successful offerors not earn positive excess
returns from the announcement date to the date success is known? Two possible
explanations are offered: either the expected loss is too small to be detected,
or "unsuccessful" is a misnomer in the sense that no loss is expected at all.
The median market capitalisation of successful offerors is $9.7 million, which is
approximately five times the median size ($2 million) of firms they acquire.
71
67. Alternative avenues potentially exist for the shareholders of offeree firms
to free the resources, e.g. the shareholders could hire new management.
Presumably a takeover occurs when the alternatives are less efficient.
68. For this interpretation of the Internal Efficiency Hypothesis to hold any
positive excess returns must pre-date the identification of a company as an
offeror. Some offerors have a history of takeover activity. Their presence in
the study weakens the test.
69. Smiley (1976) estimated that the cost of a United States takeover averages 15
percent of the bid price. Smiley's cost estimate includes the takeover offer
premium (Le. the difference between the bid price and the prevailing market
price of the offeree before the decision to acquire was made by the offeror), the
fixed costs of the offer (e.g. the cost of managerial time in making the offer,
the cost of the publication of the offer, legal costs, accounting and auditing
costs and the cost of damage which might result to the offeror if the bid failed
or was opposed), and the variable costs of the of fer (brokerage fees, stamp
duties and share register costs). The methodology he employed did not allow
total cost to be separated into its various components, some of which are not
incurred by unsuccessful offerors.
70. In general the costs of an unsuccessful bid are probably sunk. Despite this,
an expectation of negative abnormal returns can still be posited as the post-
announcement period is the period in which public knowledge of the loss first
becomes available.
71. Data for a similar comparison of unsuccessful offerors and offerees do not
exist in the file. While firm size might have some bearing on a bid's outcome,
it is unlikely to be the significant reason for success or failure in takeovers.
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WALTER: TAKEOVERS
Given these size differences, and given that Smiley's estimate includes the price
premium and variable costs not incurred by unsuccessful offerors, it is possible
that post-announcement losses are not evident because they are too small to be
detected.
The second possibili ty is that "unsuccessful" offerors on average enjoy gains
which are sufficient to compensate them for the costs of making their offers.
About half the unsuccessful bids in Australia are unsuccessful because of
competing higher bids.7
2
In many such cases the unsuccessful offeror gains by
selling its holdings in the offeree to the competing offeror at a price greater
than acquisition cost. While no data exist in the file from which I could
estimate the average size of the unsuccessful offeror's stake and the amount of
the gain, there is no doubt that "strategic" prior holdings would have existed
and conferred gains on unsuccessful offerors. In this context, the term
"unsuccessful" is potentially a misnomer.
VaPious Sub-CategoPies of Successful f f e ~ o ~ s
An objective of this paper
announcement excess negative
successful offerors.
is to offer additional evidence on the post-
returns evidenced in Dodd's (1976) results for
This study and Dodd's differ in some respects. Firstly, all takeovers
irrespective of the size of the firm involved are included in this study.
Secondly, weekly data and Sharpe's Rf model are used here; changes in risk are
allowed for by re-estimating Sit each period using the 100 previous weekly
rates of return. Dodd used the cross-sect ional model and monthly data, and
allowed for risk shifts by estimating 8i over all available pre- and post-
announcement rates of return. Thirdly, the time periods studied are different,
though there is some overlap.
The objective is easier to reach if the population of successful offerors is
divided as follows:
a. 133 offerors making successful bids between 1 January 1966 and 31 December
1969;73
72. -If we-exclude the 13 (of the 189) unsuccessful bids which occurred in the
first and last 26 week sub-periods of 1966/1972, then in 77 of the remaining 176
cases (i.e. 43.7 percent, which greatly exceeds the unconditional expectation of
a takeover bid) there was a competing successful bid in the period 26 weeks
either side of the announcement of the (unsuccessful) bid. Of the 146
unsuccessful bids for at least 50 percent of the offeree's issued capital
identified by Walker (1973), 89 of the offerees were successfully acquired in an
alternative bid. Sixty-five of these alternative bids were made within six
months of the unsuccessful bid; the other 24 occurred within the period seven to
66 months after the original (unsuccessful) bid.
73. The population is split into two groups of approximately equal size to
examine offeror returns in earlier and later periods. This procedure was also
employed by Dodd. The point at issue is whether or not the market reaction was
consistent during the period studied or whether there is evidence of a "learning"
process.
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WALTER: TAKEOVERS
b. 138 offerors making successful bids between 1 January 1970 and 31 December
1972;
c. 78 offerors making successful offers in the period common to this study and
Dodd's (1 January 1966 to 31 December 1968);74
d. 36 offerors which are common to this study and Dodd's (a sub-category of (c)
above) ;
e. 42 of ferors excluded from Dodd's study as monthly data were not available,
being those successful offerors in (c) but not in (d) above.
Table 6.S summarises the results for these sub-categories.
The post-announcement excess negative returns of successful offerors reported by
Dodd is not evident in these sub-category results. The observed returns post-
announcement for various sub-categories are consistent with the empirical
implications of the EMH and Internal Efficiency Hypothesis. The anomaly is not
evident in the results of the population of successful offerors classified by
time period, and it is only partly explained by Dodd's sampling procedure. The
firms included in Dodd's study have lower pre- and post-bid excess returns than
those excluded from Dodd's study. There is evidence in this comparison that the
anomalous post-announcement performance of Dodd's successful offerors is partly
due to a selection bias associated with data availability. Excess negative
returns of seven percent per year post-bid however are still not fully explained.
It thus appears that methodological differences must explain the markedly
different results.
It is unlikely that the use of weekly versus monthly data account entirely for
the differences. Nor are they likely to be explained by the different methods
estimating (Ji.
Differences
contribute.
of Sharpe's
in the empirical models of market equilibrium are likely to
Dodd employed the "cross-sectional" model, while an ex post analogue
Rf model is used here.
It has been previously mentioned that the interpretation of residual behaviour as
being specific to a takeover announcement is conditional on takeover activity
being independent of marke t factors, that is Rft and Rmt Simila rly,
independence is required when estimating YOt and Y1t in the cross-sectional
model. Dodd (1976, Table A) reports a disproportionate number of positive and
negative values of YOt and Y1t in the two years before and after a takeover
offer. For YOt there are 17 negative and eight positive values prior to an
announcement, and all are positive after the announcement, for Ylt 23 values are
positive and two are negative prior to the offer, and 15 out of 24 are positive
in the period after the offer. Dodd suggests that these can be taken as
indicating some lack of independence, and continued (1976, p.24):
"While the lack of independence of takeover of fers and the market factors
limits the extent to which the market reaction (including its efficiency) to
takeovers can be assessed, it does not expla in the pers istently-nega tive
post-offer residuals for successful offerors. The joint implication of the
EMH and the model (employed) still is that the expected post-offer
74. Dodd studied a sample of takeovers announced between 1 January 1960 and
31 December 1968.
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WALTER: TAKEOVERS
disturbance is zero The apparent evidence of something unusual about the
relationship between YO, Y1 and time measured relative to the announcement
date could indicate that the two-parameter model is inappropriate in this
context."
The sensitivity of Dodd's result to his choice of model was tested by comparing
the CAR estimates derived from the cross-sectional model with the corresponding
estimates derived from the market model. The test was conducted via the AGSM's
computer program API version 1.1, which accesses the N=909 version of Brown's
price relative file. Table 6.6 contains the comparison. It demonstrates that
the estimated CAR is sensitive to model choice,75 Regrettably the API program
does not accommodate any significance tests, so the weight to be placed on Dodd's
computed post-event Wilcoxon probability (0.003 for all offerors) is still open
to question.
7. CONCLUSIONS
This study investigated the share market response to all Australian takeover
offers involving a listed offeree made between 1 January 1966 and 31 December
1972. Successful and unsuccessful bids were considered.
Two basic hypotheses were confirmed. Firstly, takeover announcements were viewed
as a potential source of valuable information useful in the determination of a
firm's market capitalisation. The share market reaction to information released
in takeover bids was observed to be consistent with Fama's "semi-strong"
interpretation of the Efficient Markets Hypothesis. Secondly, takeovers were
confirmed to be undertaken in a market for corporate control in which unique
resources of offerees are auctioned among competing offerors.
Additional questions were addressed. What could explain the anomaly present in
Dodd's (1976) Australian takeover study? The most likely explanation is a
combination of sample selection method and the method he chose to isolate excess
returns. Why does the share price of an offeree subject to an unsuccessful bid,
not fall back to the pre-bid level? And why does the share price of the
unsuccessful offeror not decline, to reflect the cost of making an unsuccessful
bid? The answer to the former question lies in the revised (upward) prior
probability of another, this time successful bid eventuating at some future date;
whereas the latter is accounted for by the unsuccessful offeror selling its
strategic holding in the target company to the successful competing offeror at a
price greater than cost.
IT:T"hatabnormal returns are not so evident in the market model, rather than a
two factor model, is consistent with a size effect. See, Banz (1981) and
Reinganum (1981). When a market model is used any non-market wide factor, such
as a size effect, is incorporated into the intercept term. So long as this
effect is stable and stationary through time predicted excess returns will allow
for the size effect, and the anomaly will not be observed. Consistency is, of
course, not a demonstration of a size effect.
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WALTER: TAKEOVERS
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94
WALTER: TAKEOVERS
Walter, T.S., 1980, "Australian Takeovers: Capital Market Efficiency and
Shareholder Risk and Return", Ph.D. thesis, University of Western Australia.
Yip Yeng Hie, 1974, "Comparison Between the Theoretical and Actual Value of
Rights," unpublished B.Com. honours thesis, University of Western Australia.
95
Table 3.1

Summary of Previous Evidence ..;
trj
:;0
Franks Dodd
Name Halpern Mandelker Dodd Ellert Firth Broyles Ruback
Hecht
..;
Year of Study 1973 1974 1976 1976 1976 1977 1977

0
Country USA USA AUST USA UK UK USA
<:
trj
:;0
Period Studied 1960-1965 1941-1962 1960-1970 1950-1972 1973-1974 1955-1972 1958-1976 Ul
Sample Size
Successful offerors 77 241 136 205 214 70 124
Unsuccessful offerors 34 48
Acquired 78 252 58 311 190 70 136
Not Acquired 14 36
Period of Return Monthly Monthly Monthly Monthly Daily Monthly Monthly
Model Employed Market Cross- Cross- Cross- Market Market Market
Sectional Sectional Sectional
CAR Results
-0
Successful offerors +12.8%1 +5.1% +4.3% +21.4% -2.5% +4.6% +13 .5%
'"
Period (-23; 0) (-40; 0) (-24; 0) (-100; 0) (-30; 0) (-40; 0) (-60; 0)
Successful afferars -1.4% -15.2% -0.9% -4.8% -5.0% -5.9%
Period (+1; +40) (+1; +24) (+1; +48) (+1; +30) (+1; +40) (+1; +60)
Unsuccessful offerors +8.6% +6.5%
Period (-24; 0) (-60; 0)
Unsuccessful afferars -1.9% -2.6%
Period (+1; +24) (+1; +60)
Acquired +12.0% +33.0% +2.9% +34.0% +16.0% +28.8%
Period (-40; 0)2 (-24; 0) (-100; 0) (-30; 0) (-40; 0) (-60; 0)
Acquired +8.1% +2.9% +1.9% +7.0%
Period (+1; +5) (+1; +30) (+1; +2) (+1; +60)3
Not Acquired +30.7% +27.5%
Period (-24; 0) (-60; 0)
Not Acquired -0.3% -3.3%
Period (+1; +24) (+1; +60)
1. Combined results for all 157 firms. 2. Day 0 is the effective consummstion date.
J. Study was directed at tender offers where less than complete control is achieved.
WALTER: TAKEOVERS
Table 4.1
Time Distribution of Bid Announcements
Offerees Offerors
Calendar
-----------------
Year Not
Acquired Acquired Total Successful Unsuccessful Total
1966 33 10 43 20 4 24
1967 28 20 48 21 6 27
1968 51 26 77 37 14 51
1969 68 39 107 56 22 78
1970 52 26 78 37 15 52
1971 56 27 83 41 16 57
1972 95 41 136 59 20 79
383 189 572 271 97 368
Table 4.2
Relative Frequency of Takeover Bids
Bids per Week Frequency
0 120
1 115
2 73
3 31
4 15
5 8
6 3
7 1
-----------
97
WALTER: TAKEOVERS
Table 5.1.1
572 Offeree Companies
Excess Returns from Sharpe's Rf Version of the Market Model for 100 weeks
before and 20 weeks after a takeover offer announcement
Number of Observations Moving Z Binanial
Period A.R. C.A.R. Total Negative Positive Beta Statistic Prob.
-100 0.000 0.000 211 105 106 0.842 0.000 1.000
-90 0.015 0.015 207 97 110 0.923 -0.834 0.404
-80 -0.024 -0.009 222 131 91 0.875 -2.618 0.009
-70 0.022 0.0l3 223 127 96 0.959 -2.009 0.045
-60 0.015 0.028 225 111 114 0.974 -0.133 0.894
-50 -0.010 0.018 227 121 106 0.985 -0.929 0.353
-40 -0.008 0.010 221 116 105 0.962 -0.673 0.501
-30 0.008 0.018 230 112 118 0.958 -0.330 0.742
-20 0.015 0.033 237 121 116 0.864 -0.260 0.795
-19 0.005 0.038 233 110 123 0.885 -0.786 0.432
-18 -0.001 0.037 232 l31 101 0.916 -1.904 0.057
-17 0.003 0.040 233 112 121 0.913 -0.524 0.600
-16 -0.001 0.039 233 121 112 0.921 -0.524 0.600
-15 0.002 0.041 235 119 116 0.918 -0.l30 0.896
-14 -0.001 0.040 237 120 117 0.902 -0.130 0.897
-13 0.005 0.045 240 119 121 0.912 -0.065 0.949
-12 0.008 0.053 246 123 123 0.905 0.000 1.000
-11 0.005 0.058 240 118 122 0.914 -0.194 0.846
-10 -0.003 0.055 245 136 109 0.899 -1.661 0.097
-9 0.006 0.061 250 l33 117 0.869 -0.949 0.343
-8 0.008 0.069 244 124 120 0.900 -0.192 0.848
-7 0.008 0.077 230 110 120 0.924 -0.593 0.553
-6 0.011 0.088 228 108 120 0.917 -0.728 0.466
-5 0.004 0.092 239 119 120 0.909 0.000 1.000
-4 0.019 0.111 252 108 144 0.880 -2.205 0.027
-3 0.018 0.129 253 120 133 0.867 -0.754 0.451
-2 0.024 0.153 250 102 148 0.836 -2.846 0.004
-1 0.051 0.204 246 87 159 0.852 -4.527 0.000
0 0.128 0.332 252 52 200 0.875 -9.260 0.000
1 0.016 0.348 260 124 l36 0.918 -0.682 0.495
2 0.000 0.348 268 l32 l36 0.912 -0.183 0.855
3 0.003 0.351 263 128 135 0.890 -0.370 0.711
4 0.001 0.352 258 128 l30 0.911 -0.062 0.950
5 0.002 0.354 246 127 119 0.893 -0.446 0.655
6 0.001 0.355 240 129 111 0.883 -1.097 0.272
7 -0.001 0.354 230 128 102 0.919 -1.648 0.099
8 0.001 0.355 204 111 93 0.947 -1.190 0.234
9 -0.004 0.351 193 101 92 0.966 -0.576 0.565
10 -0.001 0.350 173 84 89 0.972 -0.304 0.761
11 0.001 0.351 163 88 75 0.930 -0.940 0.347
12 0.003 0.354 149 80 69 0.904 -0.819 0.413
13 -0.001 0.353 135 17 58 0.916 -1.549 0.121
14 0.002 0.355 115 62 53 0.870 -0.746 0.456
15 -0.004 0.351 107 54 53 0.840 0.000 1.000
16 0.001 0.352 100 45 55 0.790 -0.900 0.368
17 0.003 0.355 86 35 51 0.841 -1.617 0.106
18 0.005 0.360 75 37 38 0.902 0.000 1.000
19 -0.004 0.356 75 39 36 0.850 -0.231 0.817
20 -0.005 0.351 68 33 35 0.914 -0.121 0.903
(a) Beta is estimated using the previous 100 weekly rates of return
(excluding 26 weeks prior to an offer).
(b) Binanial Probabilities and their related z-statistics assume a
population of equal positive and negative residuals.
98
WALTER: TN'"',OVERS
Figure 5.1.1
Time-Series Pl"t ')f (;ualUlatllTe Av",rage Re,:;iduals(a)
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20
-100
1 3
T
1 2
11
A
T
A
o 9
V
R o 8
A
o 7
o 6
o 5
A
-100
-80
TIM E
-60
RELATIVE
-40
T a
-20

(a) Plot of the rAR from T.Jble 5 1 1, Column J
5.1.2
o
Time-Series Plot of Estimated Average
Beta(a)
-80 -60 -40 -20 0
T I 11 E R E L A T I V E T 0 ANNO UN
20
20
(a) Beta is averaged across all securities in this group which have an estimated beta for a particular
week, irrespective of whether of not that security had a residual return in that week. This
procedure was adopted to remove the artificial fluctuations (due to data non-availability) evident in
column 9 of Table 5.1.1.
99
WALTER: TAKEOVERS
Table 5.1.2
Summary Wilcoxon Statistics
Investigation Number
Two-tailed
Wilcoxon
Probabili ty
(z-Statistic) Period of Pairs
( -100; -1 ) 293 0.000
(3.57)
( -100; 0) 293 0.000
(6.87)
(+1; +20) 293 0.433
(0.78)
100
Sample Return
Less
Pair Return
Averaged
Per Period
0.0014
0.0029
0.0018
----
Co i I III @ 200 I All ~ i IIts ~ s i Qed
WALTER: TAKEOVERS
Table 5.2.1
383 Acquired Companies
Number of Observations Moving Z Binomial
-100 0.000 0.000 182 90 92 0.824 -0.074 0.941
-90 0.018 0.018 178 84 94 0.919 -0.675 0.500
-80 -0.021 -0.003 192 116 76 0.846 -2.815 0.005
-70 0.025 0.022 192 107 85 0.961 -1.516 0.130
-60 0.017 0.039 190 94 96 0.987 -0.073 0.942
-50 -0.009 0.030 192 99 93 0.989 -0.361 0.718
-40 -0.009 0.021 187 98 89 0.976 -0.585 0.559
-30 0.01l 0.032 199 94 105 0.979 -0.709 0.478
-20 0.015 0.047 202 100 102 0.866 -0.070 0.944
-19 0.002 0.049 199 99 100 0.891 0.000 1.000
-18 -0.001 0.048 200 113 87 0.927 -1.768 0.077
-17 0.006 0.054 200 95 105 0.927 -0.636 0.525
-16 -0.003 0.051 199 105 94 0.938 -0.709 0.478
-15 0.004 0.055 203 102 101 0.929 0.000 1.000
-14 -0.001 0.054 203 102 101 0.917 0.000 1.000
-13 0.007 0.061 206 102 104 0.926 -0.070 0.944
-12 0.008 0.069 212 107 105 0.899 -0.069 0.945
-ll 0.007 0.076 208 100 108 0.929 -0.485 0.627
-10 -0.004 0.072 210 120 90 0.921 -2.001 0.045
-9 0.005 0.077 214 116 98 0.880 -1.162 0.245
-8 0.006 0.083 208 107 101 0.921 -0.347 0.729
-7 0.013 0.096 196 86 110 0.937 -1.643 0.100
-6 0.009 0.105 194 89 105 0.925 -1.077 0.282
-5 0.003 0.108 204 105 99 0.915 -0.350 0.726
-4 0.021 0.129 215 91 124 0.886 -2.182 0.029
-3 0.014 0.143 214 103 III 0.877 -0.479 0.632
-2 0.026 0.169 210 90 120 0.845 -2.001 0.045
-1 0.050 0.219 208 78 130 0.857 -3.536 0.000
0 0.133 0.352 215 38 177 0.879 -9.412 0.000
1 0.015 0.367 223 106 ll7 0.925 -0.670 0.503
2 -0.003 0.364 226 ll4 ll2 0.915 -0.067 0.947
3 0.003 0.367 224 110 114 0.889 -0.200 0.841
4 0.000 0.367 221 110 III 0.908 0.000 1.000
5 0.002 0.369 209 106 103 0.886 -0.138 0.890
6 0.003 0.372 201 106 95 0.875 -0.705 0.481
7 -0.001 0.371 192 107 85 0.909 -1.516 0.130
8 0.003 0.374 169 90 79 0.952 -0.769 0.442
9 -0.005 0.369 161 79 82 0.963 -0.158 0.875
10 0.000 0.369 143 66 77 0.978 -0.836 0.403
11 0.003 0.372 138 70 68 0.943 -0.085 0.932
12 0.002 0.374 123 67 56 0.898 -0.902 0.367
13 0.000 0.374 108 58 50 0.902 -0.674 0.501
14 0.004 0.378 93 49 44 0.860 -0.415 0.678
15 -0.007 0.371 84 44 40 0.827 -0.327 0.743
16 -0.001 0.370 78 36 42 0.786 -0.566 0.571
17 0.003 0.373 66 26 40 0.860 -1.600 0.110
18 0.004 0.377 58 29 29 0.891 0.000 1.000
19 -0.004 0.373 59 33 26 0.832 -0.781 0.435
20 -0.004 0.369 51 23 28 0.934 -0.560 0.575
( b) Binomial Probabilities and their related z-statistics aSSlDDe a
population of equal pos i tive and negative residuals.
101
WALTER: TAKEOVERS
Figure 5.2.1
Time-Series Plot of Cumulative Average Residuals(a)
0.58
0.40
0.30
0.20
0.10
0.00
-0.10
-0.20
-100
E I 3
S
T
r1
A
T
A
V
E
R
A
G
E
T
A
I 2
1. I
o 9
0 8
0 7
o 6
o 5
-100
-80 -60 -40 -20 o
TIllE RELATIVE TO ANNOUNCEMENT
(a) Plot of the CAR from Table 5 I, column 3.
Figure 5.2.2
Time-Series Plot of Estimated Average Beta(a)
-80 -60 -40 -20
TIM E R E LATIVE TO ANNOUNCEMENT
20
20
102
Copyright 200 I All
WALTER: TAKEOVERS
Table 5.2.2
Two-ta iled
Wilcoxon
Probabili ty
(-100; -1) 245 0.000
(3.78)
(-100; 0) 245 0.000
(6.96)
(+1; +20) 245 0.596
(0.53)
103
Sample Return
Less
Pair Return
Average
Per Period
0.0016
0.0032
0.0019
WALTER: TAKEOVERS
Table 5.3.1
189 Offerees - Bids Unsuccessful
Period A.R. C.A.R. Total Nega tive Positive Beta Statistic Prob.
-100 -0.003 -0.003 29 15 14 0.952 0.000 1.000
-90 -0.007 -0.010 29 13 16 0.946 -0.371 0.710
-80 -0.035 -0.045 30 15 15 1.059 0.000 1.000
-70 0.004 -0.041 31 20 11 0.947 -1.437 0.151
-60 -0.006 -0.047 35 17 18 0.906 0.000 1.000
-50 -0.013 -0.060 35 22 13 0.961 -1.352 0.176
-40 -0.003 -0.063 34 18 16 0.889 -0.171 0.864
-30 -0.010 -0.073 31 18 13 0.823 -0.718 0.472
-20 0.011 -0.062 35 21 14 0.852 -1.014 0.310
-19 0.022 -0.040 34 11 23 0.852 -1.886 0.059
-18 0.001 -0.039 32 18 14 0.844 -0.530 0.596
-17 -0.015 -0.054 33 17 16 0.831 0.000 1.000
-16 0.014 -0.040 34 16 18 0.824 -0.171 0.864
-15 -0.012 -0.052 32 17 15 0.850 -0.177 0.860
-14 -0.001 -0.053 34 18 16 0.809 -0.171 0.864
-13 -0.008 -0.061 34 17 17 0.828 0.000 1.000
-12 0.014 -0.047 34 16 18 0.943 -0.171 0.864
-11 -0.012 -0.059 32 18 14 0.822 -0.530 0.596
-10 0.003 -0.056 35 16 19 0.764 -0.338 0.735
-9 0.011 -0.045 36 17 19 0.802 -0.167 0.868
-8 0.016 -0.029 36 17 19 0.779 -0.167 0.868
-7 -0.016 -0.045 34 24 10 0.844 -2.229 0.026
-6 0.026 -0.019 34 19 15 0.872 -0.514 0.607
-5 0.007 -0.012 35 14 21 0.872 -1.014 0.310
-4 0.005 -0.007 37 17 20 0.846 -0.329 0.742
-3 0.038 0.031 39 17 22 0.8ll -0.641 0.522
-2 0.014 0.045 40 12 28 0.785 -2.372 0.018
-1 0.054 0.099 38 9 29 0.820 -3.082 0.002
0 0.102 0.201 37 14 23 0.855 -1.315 0.188
1 0.021 0.222 37 18 19 0.876 0.000 1.000
2 0.018 0.240 42 18 24 0.900 -0.772 0.440
3 0.003 0.243 39 18 21 0.897 -0.320 0.749
4 0.008 0.251 37 18 19 0.927 0.000 1.000
5 0.004 0.255 37 21 16 0.929 -0.658 0.511
6 -0.013 0.242 39 23 16 0.925 -0.961 0.337
7 0.002 0.244 38 21 17 0.971 -0.487 0.626
8 -0.007 0.237 35 21 14 0.920 -1.014 0.310
9 -0.003 0.234 32 22 10 0.982 -1.945 0.052
10 -0.005 0.229 30 18 12 0.940 -0.913 0.361
II -0.013 0.216 25 18 7 0.860 -2.000 0.046
12 0.011 0.227 26 13 13 0.931 0.000 1.000
13 -0.005 0.222 27 19 8 0.974 -1.925 0.054
14 -0.008 0.214 22 13 9 0.912 -0.640 0.522
15 0.006 0.220 23 10 13 0.887 -0.417 0.677
16 0.008 0.228 22 9 13 0.803 -0.640 0.522
17 0.003 0.231 20 9 11 0.780 -0.224 0.823
18 0.009 0.240 17 8 9 0.938 0.000 1.000
19 0.000 0.240 16 6 10 0.916 -0.750 0.453
20 -0.011 0.229 17 10 7 0.855 -0.485 0.628
(b) Binomial Probabilities and their related z-statistics assume a
104
Copyriglit @ 200 I All Rights ResefveCl
WALTER:
E
T
I
M
A
D
A
V
R
A
A
TAKEOVERS
Figure 5.3.1
Time-Series Plot of Cumulative Average Residua1s(a)
8.58
8.40
8.S8
8.28
8.18
8.ee
-8.18
-8.28
-lee
n
1.3
1.2
10 9
10 8
10 7
10.6
10 5
-11010
-ee
TIM E
-48 -28 -68
RELATIVE TO ANNOUNCEMENT
(8) Plot of the CAR from Table 3.1. column 3
Figure 5.3.2
8
J0-Series Plot of Estimated Average Beta(a)
TIME RELATIVE TO ANNOUNCEMENT
105
WALTER: TAKEOVERS
Table 5.3.2
Investigation Numbers
Period of Pairs
( -100; -1 ) 48
( -100; 0) 48
(+1; +20) 48
Two-tailed
Wilcoxon
Probability
(z-Statistic)
0.778
(0.28)
0.220
(1.23)
0.406
(0.83)
106
Sample Return
Less
Pair Return
Averaged
Per Period
-0.0001
0.0014
0.0018
1Ei"'271QrlIQrT''r1 7.AITlnl ..
WALTER: TAKEOVERS
Table 6.1.1
368 Offeror Companies
-100 -0.001 -0.001 198 105 93 0.991 -0.782 0.434
-90 0.023 0.022 213 101 112 0.964 -0.685 0.493
-80 0.008 0.030 213 116 97 0.958 -1.233 0.217
-70 0.020 0.050 211 114 97 0.974 -1.101 0.271
-60 0.030 0.080 206 102 104 0.959 -0.070 0.944
-50 0.043 0.123 216 123 93 0.917 -1.973 0.048
-40 0.042 0.165 231 104 127 0.988 -1.447 0.148
-30 0.029 0.194 232 119 113 0.980 -0.328 0.743
-20 0.046 0.240 243 106 137 1.019 -1.925 0.054
-19 0.007 0.247 242 108 134 1.027 -1.607 0.108
-18 0.006 0.253 247 114 133 0.988 -1.145 0.252
-17 0.001 0.254 251 122 129 0.990 -0.379 0.705
-16 0.005 0.259 253 126 127 0.982 0.000 1.000
-15 0.003 0.262 245 119 126 0.982 -0.383 0.701
-14 0.005 0.267 245 119 126 1.012 -0.383 0.701
-13 0.006 0.273 246 123 123 1.023 0.000 1.000
-12 0.001 0.274 243 126 117 1.044 -0.513 0.608
-11 -0.004 0.270 238 138 100 1.044 -2.398 0.016
-10 -0.005 0.265 242 128 114 1.062 -0.836 0.403
-9 0.002 0.267 253 133 120 1.059 -0.754 0.451
-8 0.004 0.271 253 121 132 1.060 -0.629 0.530
-7 0.005 0.276 248 116 132 1.058 -0.953 0.341
-6 0.004 0.280 248 132 116 1.046 -0.953 0.341
-5 0.009 0.289 249 120 129 1.070 -0.507 0.612
-4 0.001 0.290 243 125 118 1.080 -0.385 0.700
-3 0.001 0.291 242 120 122 1.059 -0.064 0.949
-2 0.009 0.300 244 III 133 1.071 -1.344 0.179
-1 0.010 0.310 245 115 130 1.075 -0.894 0.371
0 -0.003 0.307 252 124 128 1.046 -0.189 0.850
1 -0.005 0.302 250 144 106 1.047 -2.340 0.019
2 0.005 0.307 245 117 128 1.058 -0.639 0.523
3 0.004 0.311 245 125 120 1.052 -0.256 0.798
4 -0.003 0.308 245 125 120 1.059 -0.256 0.798
5 0.003 0.311 244 118 126 1.051 -0.448 0.654
6 -0.003 0.308 248 121 127 1.057 -0.318 0.751
7 0.001 0.309 241 122 119 1.039 -0.129 0.897
8 -0.004 0.305 248 139 109 1.052 -1.842 0.066
9 0.006 0.311 254 122 132 1.063 -0.565 0.572
10 0.004 0.315 253 120 133 1.076 -0.754 0.451
11 -0.003 0.312 244 129 115 1.051 -0.832 0.405
12 0.001 0.313 244 126 118 1.047 -0.448 0.654
13 0.002 0.315 247 126 121 1.079 -0.255 0.799
14 0.002 0.317 246 117 129 1.066 -0.701 0.483
15 -0.003 0.314 251 138 113 1.053 -1.515 0.130
16 0.003 0.317 251 131 120 1.057 -0.631 0.528
17 0.005 0.322 248 125 123 1.061 -0.064 0.949
18 0.000 0.322 252 133 119 1.071 -0.819 0.413
19 -0.002 0.320 254 129 125 1.065 -0.188 0.851
20 0.001 0.321 255 126 129 1.062 -0.125 0.900
30 0.001 0.322 255 138 117 1.096 -1.252 0.210
40 -0.001 0.321 252 131 121 1.143 -0.567 0.571
50 0.005 0.326 252 126 126 1.119 0.000 1.000
60 -0.002 0.324 256 129 127 1.126 -0.062 0.950
70 0.000 0.324 256 134 122 1.162 -0.687 0.492
80 -0.003 0.321 253 119 134 1.173 -0.880 0.379
90 0.000 0.321 247 133 114 1.183 -1.145 0.252
100 0.006 0.327 236 122 114 1.203 -0.456 0.649
( a) Beta is estimated using the previous 100 weekly rates of return.
( b) Binomial Probabilities and their related z-statistics assume a
107
Co ri ht 2001 All Ri hts Reserved
WALTER: TAKEOVERS
T
M
A
A
V
R
A
B
T
A
Figure 6.1.1
8.58
8.48
8.S8
8.28
8.18
8.88
-8.18
-8.28 __ __ __ __
-188 -88 -60 -48 -28 8 28 48 88 188
(a) Plot of the CAR frOlll Table 6.1.1. colullln 3
Fi.gure 6.1.2
1.3
1.2
1.1
0.9
0.8
0.7
0.6
o 5
-100 -80 -60 -40 -20 0 20 40 60 80 100
TIM E RELATIVE TO ANNOUNCEMENT
week. irrespective of whether of not that security had a residual return 1n that week. This
108
OOpy,;glIL 2ee 1 All Rights
WALTER: TAKEOVERS
Table 6.1.2
Sample Return
Two -ta 11 ed Less
Wilcoxon Pair Return
Investigation Number Probab11i ty Averaged
Period of Pairs (z-Statistic) Per Period
------
( -100; -1 ) 281 0.000 0.0034
(5.58)
( -100; 0) 281 0.000 0.0031
(5.46)
(+1; +100) 281 0.790 0.0004
(0.27)
109
WALTER: TAKEOVERS
Table 6.2.1
271 Successful Offerors
-100 -0.002 -0.002 162 86 76 0.970 -0.707 0.479
-90 0.023 0.021 175 79 96 0.954 -1.209 0.226
-80 0.005 0.026 177 94 83 0.964 -0.752 0.452
-70 0.023 0.049 175 96 79 0.977 -1.209 0.226
-60 0.040 0.089 175 85 90 0.964 -0.302 0.762
-50 0.042 0.131 182 104 78 0.941 -1.853 0.064
-40 0.033 0.164 193 90 103 1.000 -0.864 0.388
-30 0.029 0.193 197 105 92 0.982 -0.855 0.393
-20 0.038 0.231 204 92 112 1.016 -1.330 0.183
-19 0.003 0.234 203 95 108 1.015 -0.842 0.400
-18 0.007 0.241 210 97 113 0.980 -1.035 0.301
-17 0.003 0.244 213 99 114 0.983 -0.959 0.337
-16 0.004 0.248 212 108 104 0.978 -0.206 0.837
-15 0.002 0.250 204 104 100 0.973 -0.210 0.834
-14 0.005 0.255 205 101 104 1.000 -0.140 0.889
-13 0.005 0.260 209 105 104 1.001 0.000 1.000
-12 -0.001 0.259 209 111 98 1.029 -0.830 0.407
-11 -0.003 0.256 202 119 83 1.040 -2.463 0.014
-10 -0.005 0.251 204 108 96 1.050 -0.770 0.441
-9 0.001 0.252 213 114 99 1.053 -0.959 0.337
-8 0.004 0.256 212 103 109 1.057 -0.343 0.731
-7 0.007 0.263 211 97 114 1.048 -1.101 0.271
-6 0.001 0.264 212 115 97 1.036 -1.168 0.243
-5 0.005 0.269 211 108 103 1.064 -0.275 0.783
-4 0.001 0.270 206 106 100 1.076 -0.348 0.728
-3 0.000 0.270 207 104 103 1.056 0.000 1.000
-2 0.010 0.280 209 90 119 1.047 -1.937 0.053
-1 0.009 0.289 206 103 103 1.051 0.000 1.000
0 -0.007 0.282 211 108 103 1.037 -0.275 0.783
1 -0.006 0.276 210 119 91 1.033 -1.863 0.062
2 0.003 0.279 206 100 106 1.039 -0.348 0.728
3 0.004 0.283 207 107 100 1.036 -0.417 0.677
4 -0.002 0.281 207 107 100 1.026 -0.417 0.677
5 0.002 0.283 207 97 110 1.023 -0.834 0.404
6 -0.003 0.280 208 100 108 1.032 -0.485 0.627
7 0.002 0.282 204 104 100 1.020 -0.210 0.834
8 -0.002 0.280 209 116 93 1.037 -1.522 0.128
9 0.007 0.287 214 104 110 1.048 -0.342 0.733
10 0.004 0.291 212 98 114 1.057 -1.030 0.303
11 -0.005 0.286 207 111 96 1.039 -0.973 0.331
12 -0.001 0.285 207 112 95 1.035 -1.112 0.266
13 0.002 0.287 207 108 99 1.050 -0.556 0.578
14 0.002 0.289 208 100 108 1.039 -0.485 0.627
15 -0.003 0.286 214 118 96 1.015 -1.436 0.151
16 0.001 0.287 215 113 102 1.022 -0.682 0.495
17 0.005 0.292 211 103 108 1.038 -0.275 0.783
18 -0.003 0.289 213 115 98 1.055 -1.096 0.273
19 -0.004 0.285 217 111 106 1.047 -0.272 0.786
20 0.001 0.286 218 109 109 1.029 0.000 1.000
30 -0.003 0.283 220 118 102 1.054 -1.011 0.312
40 -0.011 0.272 211 109 102 1.092 -0.413 0.680
50 0.005 0.277 211 104 107 1.052 -0.138 0.890
60 0.002 0.279 210 102 108 1.086 -0.345 0.730
70 -0.011 0.268 214 114 100 1.123 -0.889 0.374
80 -0.005 0.263 213 102 III 1.137 -0.548 0.584
90 0.001 0.264 209 112 97 1.149 -0.968 0.333
100 0.003 0.267 198 103 95 1.184 -0.497 0.619
(a) Beta is estimated using the previous 100 weekly rates of return.
( b) Binomial Probabilities and their related z-statistics assume a
110
COpy! ight -- --- - ---
WALTER: TAKEOVERS
T
I
M
A
E
D
V
E
A
G
E
Figure 6.2.1
0.50
0.40
0.S0
0.20
0.10
0.00
-0.10
-0.20
-100 -80 -60 -40 -20 o 20 40 60 80
1.3
1 2
0.9
o 8
o 7
0.6
o 5
-100
TIllE RELATIVE TO ANNOUNCEMENT
(a) Plot of the CAR fJ:olll Table 6.2 I. column 3
Figure 6.2.2
271 Successful
Time-Series Plot of Average Beta(a)
-80 -60 -40 -20 0 20 40 60 80
TIll E RELATIVE TO ANNOUNCEMENT
100
100
(a) Beta ).8 averaged across all securities in this group which have an estiJllated beta for a particular
111
WALTER: TAKEOVERS
- 1 -
Table 6.2.2
Two-tailed
Wilcoxon
Pro babili ty
( -100; -1 ) 234 0.000
(4.81 )
(-100; 0) 234 0.000
(4.67)
(+1; +100) 234 0.084
(1. 73)
112
Sample Return
Less
Pair Return
Averaged
Per Period
0.0029
0.0026
-0.0005
Copyng ht
()
0
"'0
'<
....,
cC
::::r
-
@
I\..)
a
a
>-
w
;U
cC
::::r
-
en
;U
CD
en
CD
:;:
CD
c.
Period
Announcement
Week
Week 1
Week 2
Takeover
Period
Table 6.2.3
Cross-sectional Statistics on Abnormal Returns for 271 Successful Offerors in the
Announcement Week, Week 1, Week 2 and the Takeover Period
a
Average Decile Distribution of Abnormal Returns
Abnormal
Return .1 .2 .3 .4 .5 .6 .7 .8
-0.0066 -0.0558 -0.0277 -0.0181 -0.0076 -0.0005 0.0053 0.0133 0.0260
-0.0062 -0.0579 -0.0356 -0.0209 -0.0125 -0.0051 0.0019 0.0097 0.0209
0.0033 -0.0445 -0.0247 -0.0112 -0.0036 0.0013 0.0130 0.0209 0.0337
-0.0013 -0.0121 -0.0066 -0.0041 -0.0025 -0.0000 0.0021 0.0045 0.0074
.9
0.0438
0.0404
0.0512
0.0125
a. The takeover period is the period between the announcement week and the date the offer was declared
uncondi t ional. Returns are averaged across the number of available residuals in this period.

>-l
t>:I
::c
>-l

<:
t>:I
::c
en
WALTER: TAKEOVERS
Table 6.3.1
97 Unsuccessful Offerors
Number of Observations Moving Z BinOlllial
-100 0.001 0.001 36 19 17 1.089 -0.167 0.868
-90 0.024 0.025 38 22 16 1.010 -0.811 0.417
-80 0.022 0.047 36 22 14 0.929 -1.167 0.243
-70 0.012 0.059 36 18 18 0.956 0.000 1.000
-60 -0.023 0.036 31 17 14 0.931 -0.359 0.719
-50 0.043 0.079 34 19 15 0.785 -0.514 0.607
-40 0.088 0.167 38 14 24 0.931 -1.460 0.144
-30 0.030 0.197 35 14 21 0.968 -1.014 0.310
-20 0.093 0.290 39 14 25 1.030 -1.601 0.109
-19 0.024 0.314 39 13 26 1.089 -1.922 0.055
-18 0.003 0.317 37 17 20 1.032 -0.329 0.742
-17 -o.Oll 0.306 38 23 15 1.024 -1.136 0.256
-16 0.009 0.315 41 18 23 1.005 -0.625 0.532
-15 0.009 0.324 41 15 26 1.027 -1.562 0.118
-14 0.011 0.335 40 18 22 1.017 -0.474 0.635
-13 0.009 0.344 37 18 19 1.150 0.000 1.000
-12 0.006 0.350 34 15 19 1.137 -0.514 0.607
-11 -0.003 0.347 36 19 17 1.067 -0.167 0.868
-10 -0.005 0.342 38 20 18 1.125 -0.162 0.871
-9 0.005 0.347 40 19 21 1.087 -0.158 0.874
-8 0.005 0.352 41 18 23 1.072 -0.625 0.532
-7 -0.003 0.349 37 19 18 1.118 0.000 1.000
-6 0.016 0.365 36 17 19 1.104 -0.167 0.868
-5 0.033 0.398 38 12 26 1.103 -2.109 0.035
-4 -0.002 0.396 37 19 18 1.105 0.000 1.000
-3 0.009 0.405 35 16 19 1.079 -0.338 0.735
-2 0.003 0.408 35 21 14 1.215 -1.014 0.310
-1 0.019 0.427 39 12 27 1.202 -2.242 0.025
0 0.013 0.440 41 16 25 1.094 -1.249 0.212
1 0.003 0.443 40 25 15 1.119 -1.423 0.155
2 0.014 0.457 39 17 22 1.160 -0.641 0.522
3 0.008 0.465 38 18 20 1.138 -0.162 0.871
4 -0.008 0.457 38 18 20 1.238 -0.162 0.871
5 0.009 0.466 37 21 16 1.210 -0.658 0.511
6 -0.009 0.457 40 21 19 1.187 -0.158 0.874
7 -0.004 0.453 37 18 19 1.142 0.000 1.000
8 -0.013 0.440 39 23 16 1.135 -0.961 0.337
9 0.003 0.443 40 18 22 1.147 -0.474 0.635
10 0.002 0.445 41 22 19 1.178 -0.312 0.755
11 0.010 0.455 37 18 19 1.118 0.000 1.000
12 0.009 0.464 37 14 23 1.119 -1.315 0.188
13 0.002 0.466 40 18 22 1.228 -0.474 0.635
14 -0.001 0.465 38 17 21 1.217 -0.487 0.626
15 0.001 0.466 37 20 17 1.270 -0.329 0.742
16 0.017 0.483 36 18 18 1.265 0.000 1.000
17 0.000 0.483 37 22 15 1.194 -0.986 0.324
18 0.017 0.500 39 18 21 1.157 -0.320 0.749
19 0.013 0.513 37 18 19 1.174 0.000 1.000
20 -0.002 0.511 37 17 20 1.256 -0.329 0.742
30 0.023 0.534 35 20 15 1.356 -0.676 0.499
40 0.058 0.592 41 22 19 1.406 -0.312 0.755
50 0.001 0.593 41 22 19 1.465 -0.312 0.755
60 -0.015 0.578 46 27 19 1.313 -1.032 0.302
70 0.048 0.626 42 20 22 1.361 -0.154 0.877
80 0.012 0.638 40 17 23 1.362 -0.791 0.429
90 -0.007 0.631 38 21 17 1.372 -0.487 0.626
100 0.022 0.653 38 19 19 1.301 0.000 1.000
(a) Beta is estimated using the previous 100 weekly rates of return.
( b) Binomial Probabilities and their associated z-statistics assume a
population of equal positive and negative reSiduals.
114
-----
WALTER: TAKEOVERS
T
J
M
T
v
T
A
Figure 6.3.1
0.70
0.60
0.50
0.40
o 30
o 20
0.10
-0.00
-0 10
-100 -80 -60 -40 -20 o 20 40 60 80
1 3
1 2
1.1
121 9
121 8
121 7
10 6
121.5
-112110
(8) plot of the CAR from Table 6.3.1, column)
Figure 6.3.2
-810 -6121 -410 -2121 0 210 410 6121 80
T J M E R E L A T I V E T 0 ANNOUNCEMENT
100
11010
(a) Beta 19 averaged acrOS$ all securities in this group which have an estimated beta for a particular
115
WALTER: TAKEOVERS
Table 6.3.2
Two-tailed
Wilcoxon
Probability
( -100; -1 ) 47 0.004
(2.92 )
(-100; 0) 47 0.003
(2.97)
(+1; +100) 47 0.006
(2.74)
116
Sample Return
Less
Pair Return
Averaged
Per Period
0.0052
0.0054
0.0048
..... r""l "'n ... AII1::R"'1 vT!:el'7'dr------------
WALTER: TAKEOVERS
Table 6.4
Post-Bid Announcements of Unsuccessful Offerors (97)
Split into First (48) and Second (49) Bids
--------
Type of Information Released
(i)
(Ii)
(iii)
( iv)
At least one rights or
bonus issue
Bonus issue
Rights issue
Takeover bid received
Capital return
Firms not making any
of the above
Firms in (iv) which
increased dividends
Firms in (iv) which
reduced dividends
Firms in (iv) making
no change
DIVIDEND FILES
Firms acquired prior
to next dividend
(v) Firms which have further
dividend histories
Firms in (v) which
increased dividends
Firms in (v) which made
no change
Firms in (v) which
increased and then
reduced dividends
Firms in (v) which
reduced dividends
All (97)
Bids
57
58
25
15
2
23
15
2
6
9
88
63
13
6
6
Frequency of Announcement by
First (48)
Bids
30
26
15
7
2
9
6
3
3
45
34
7
1
2
(0.69)
(0.43)
(0.32)
(1.00)
(0.30)
(0.60)
( 1.00)
(0.51)
(0.83)
(0.53)
( 1.00)
(0.21)
(0.69)
Second (49)
Bids
27
32
10
8
14
9
2
3
6
43
29
6
5
4
-------------------------------------_._-----------------
Note: Figures in parentheses are two ta iled binomial probabili ties of observing
the indicated proportions in the sub-categories on the null hypothesis of
an expected equal proportion.
117
WALTER: TAKEOVERS
Table 6.5
Summary Results for Various Sub-Categories
of Successful Offerors
Category
133 offerors
138 offerors
78 offerors
36 offerors
42 offerors
Investigation Period
CAR (percent)
(-100; 0) (+1; +100)
+25.7 -0.3
(0.001) (0.147)
+30.8 -2.7
(0.002) (0.352)
+29.7 +2.9
(0.048) (0.731)
+16.1 -3.1
(0.475) (0.131)
+39.0 +8.6
(0.049) (0.368)
Figures in parentheses are
two-tailed Wilcoxon probabilities.
Table 6.6
Comparison of CARs for Offerors Studied by Dodd -
Cross-Sectional Model versus Market Model
Successful Unsuccessful All
Model and Offerors Offerors Offerors
Time Period (N=196) (N=52) (N=248 )
Cros s -Sect ional:
- CAR ( -24,0) +12.9% +15.8% +13.5%
- CAR (+1,+24) -3.6 -5.4 -4.0
Market Model:
- CAR (-20,0) +3.1 +9.1 +4.4
- CAR (+1,+24) +2.7 +2.6 +2.6
------------------------------
118
COpyi igl it @ 200 I All ~ i g l i t s ~ s i Qed

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