How Would the Date of 52-week High/low of a Bidder Affect M&A?

Abstract

This thesis consists of three empirical studies. First, it discusses how the acquirers' date of 52-week high/low affects the completeness and the performance of the acquirers in M&A. Second, it compares the conflicting market timing effect and signalling effect in M&A and discusses which is the domination power in the deals. Finally, it examines how the choice of financial advisors affects bidders in M&A under the influence of payment methods and the psychological reference points at or near the dates of 52-week high and low.

Based on the US M&As undertaken in the period between 1/1/1985 - 03/31/2015, the thesis finds that 1) an M&A announcement closer to the date of the 52-week peak will positively influence the completion of the transaction but negatively affect the cumulative abnormal returns (CARs) and buy-and-hold abnormal returns (BHARs), while an M&A announcement closer to the date of the 52-week low will be significantly associated with higher 36-month and 60-month BHARs but lower deal completion given stock exchange as the payment method. 2) Anti-signallers (bidders that announce pure cash deals close to the date of the 52-week low) have the highest short-term return, while timers (bidders that announce pure stock deals close to the date of the 52-week high) perform the worst in terms of CARs after the announcement. In the long term, reversals exist in all categories of bidders. The anti-signallers have the lowest reversal in the long term, while the timers have the highest long-term reversal. 3) When payment methods and the announcement timing are controlled, neither the top- nor the median-tier financial advisors bring significant gains whatsoever; the low-tier advisors even incur remarkable loss to the acquirers. The in-house deal announcements are recognized by the market with significantly positive cumulative abnormal returns in the short term; however, they are unlikely to be completed due to the lack of experience in M&A. Comparatively speaking, the median-tier advisors are the most cost effective in terms of the deal completion and consequent performances.

This thesis contributes to the existing literature 1) by establishing a bidder reference timing point at the date of the 52-week high/low, when the announcement significantly impacts the M&A. 2) In addition, the contradictive recommendation for payment methods from market timing theory and signalling theory are reconciled and complemented with more details. 3) Finally, it empirically proves that the influence from the reference timing point of the dates of the 52-week high/low is even more decisive than that of the financial advisors.