The Determinants of Outcome in UK Take–over Bids

Abstract

In this paper we have investigated the determinants of the outcome of 238 friendly and hostile take-over bids that occurred in the UK during the 1980s. We also use our model for prediction purposes and in order to map the effects of a variety of independent variables on the probability of the bid being successful. Our main results can be summarised as follows. First, target management resistance and the wealth effect of a bid are key determinants of the outcome of a bid. Second, we find limited evidence to suggest that share ownership by the bidding company and by target directors also contributes significantly to bid outcome. In the latter case we find a non-linear relationship consistent with the argument that when director holdings are low the bid is discouraged but when they are high the bid is encouraged. Third, our model is good at predicting outcome for all bids but weak at predicting the outcome of hostile bids on their own.