Contested Tender Offers: An Estimate of the Hazard Function

Sanjiv Jaggia, Suffolk University
Satish Thosar, University of Massachusetts Boston

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Copyright © 1995 American Statistical Association.

NOTE: At the time of publication, the author Sanjiv Jaggia was not yet affiliated with Cal Poly.

Abstract

In this article we estimate the hazard function (takeover probabilities) for firms that are targets in unsolicited tender offers. The data support a Weibull-gamma specification and imply a hazard rate that increases sharply in the initial period following the bid announcement, after which it declines steadily. In explaining the hazard, we find that the initial bid premium has no explanatory power, but the onset of an auction and the proportion of institutional ownership In the target firm significantly enhance the hazard. Legal and financial restructuring actions by target management are effective in reducing the hazard, thereby prolonging the contest.