A theoretical and empirical analysis of shareholder tender agreements in tender offer contests

This study investigates Shareholder Tender Agreements (STA). An STA is a contract between a bidder in a tender offer and a shareholder in the target firm in which the shareholder commits to tender her shares to that bidder, forsaking her right to tender to any subsequent competing bids. An STA occurs in roughly 60% of tender offers between 1995 and 2001.; In the first chapter I provide a model demonstrating the optimality of such a contract. In particular, I show that, although signing this contract is costly to the shareholder, it certifies the bidder's synergy value thus mitigating the problem of asymmetric information. As a result, the STA extends the range of positive synergy values for which takeovers are initiated. Having solved for the optimal STA I derive several novel predictions regarding the differences between tender offers with and without STAB. For example, I show that tender offers including an STA will have a lower bid and synergy value relative to tender offers that do not. In addition, I find that STAs are more likely when the ex-ante uncertainty in value is high, the ownership of the largest shareholder is high, and when the bidding environment is less competitive.; In the second chapter I propose two addition hypotheses for STAs. I then test the predictions resulting from all three motivations. Both of the additional hypotheses focus on the advantage offered to a particular bidder when a shareholder commits her shares to that bidder. In the first, the signatories act in the best interest of shareholders and use the STA as a bargaining chip to extract a higher bid. The second, focusing on agency conflicts, suggests that managers use an STA to expropriate takeover surplus. The evidence indicates that STA offers have significantly lower bid premiums than non-STA offers. In addition, the probability of an STA is positively associated with asymmetric information and ownership concentration but negatively associated with agency conflicts. These results offer strong support for the certification hypothesis developed in the first chapter, but do not indicate managerial expropriation.