Informed acquirers and M&A outcomes

I investigate how informed acquirers’ actions affect takeover outcomes by examining deals in which acquirers engage in pre-takeover partnerships with targets through long-term minority stakes, alliances and joint ventures. Two-stage acquirers’ access to inside information triggers a trade-off between better decision-making and an indirectly higher takeover price by increasing the target’s share price after the first-stage engagement. Two-stage deals are associated with lower integration costs, higher long-term performance and higher completion likelihood, but long-term first-stage engagements also provide information about the target’s value to outside market participants. These findings hold when using the staggered enactment of the Uniform Trade Secrets Act as a negative shock to the target’s information environment and across international samples. Overall, these results identify a trade-off between decision-making benefits and target acquisition costs, which explains why an indirectly more costly takeover strategy may persist in equilibrium.