Kauppakorkeakoulun julkaisuportaali
Aalto-yliopiston kauppakorkeakoulun gradujen tiedot nyt Aaltodocissa: Aaltodoc-julkaisuarkisto
Kauppakorkeakoulu | Rahoituksen laitos | Rahoitus | 2014
Tutkielman numero: 13599
Reverse termination fees and mergers and acquisitions outcomes; evidence from the United States
Tekijä: Häkämies, Juuso
Otsikko: Reverse termination fees and mergers and acquisitions outcomes; evidence from the United States
Vuosi: 2014  Kieli: eng
Laitos: Rahoituksen laitos
Aine: Rahoitus
Asiasanat: rahoitus; financing; yrityskaupat; corporate acquisitions; irtisanominen; giving notice; maksut; payments; tuotto; rate of return
Sivumäärä: 62
Avainsanat: Reverse termination fees, mergers & acquisitions, cumulative abnormal returns, deal premiums, deal completion

In this thesis, I study the effects that including a reverse termination fee, which is a termination fee payable by the bidding company, have on mergers & acquisitions (M&A) outcomes. In more detail, I examine how including a reverse termination fee affects premiums paid to target shareholders, bidder and target company cumulative abnormal returns around the deal announcement date and deal completion. Furthermore, by dividing the reverse termination fee deals into sub-samples according to fee size, I examine whether the size of the reverse termination fee (measured as a percentage of transaction value) affects deal premiums and cumulative abnormal returns. Finally, I study what factors explain the inclusion of a reverse termination fee in an M&A transaction.


The dataset consists of 2630 M&A deals, where both the bidder and target company are based in the United States, occurring between 1990 and 2012. To be included in the sample, the transaction value must be greater than $10 million and the bidder must seek a majority stake in the target company. The M&A deal data is obtained from Securities Data Corporation (SDC) and the stock price data and financial data are from Center for Research in Securities Prices (CRSP) and COMPUSTAT, respectively. To test the hypotheses, I employ several regressions using both Ordinary least squares (OLS) and logistic models.


The main findings of the thesis are five-folded. Firstly, the mean and median premiums paid to target shareholders are smaller in transactions that contain a reverse termination fee. However, after controlling for several control variables the premiums are not statistically significantly smaller. Secondly, the cumulative abnormal returns for both bidder and target companies are statistically significantly smaller around the deal announcement date. Thirdly, inclusion of a reverse termination fee only increases the probability of completing a transaction by 0.1%. Fourthly, target termination fees, stock financing and the size of the target company explain the Fifthly, the reverse termination fee size (measured as a percentage of the transaction value) affects M&A outcomes. Having a reverse termination fee that is consider high, leads to lower premiums paid to target shareholders and consequently lower cumulative abnormal returns for the target company around the announcement date when compared to deals that include a reverse termination fee that is considered to be low.
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