Reference Point Pricing in European M&A Transactions:

Sammanfattning: This paper analyzes the existence of price reference points in the pricing of European merger and acquisition transactions, particularly the relevance of the 52-week-high price as a reference point. The results indicate a statistical relationship between the 52-week-high price and the offer price that is inconsistent with the theory of efficient pricing of mergers and acquisitions. The relationship persisted after the inclusion of transaction-specific controls and financial information on the transaction participants, as well as the inclusion of shareholder-specific characteristics. The analysis of shareholder-specific subsamples revealed significant deviations within the sample of companies controlled by corporate shareholders, which tended to exhibit much weaker relation between the 52-week-high price and the offer price, possibly due to the relevance of different price reference points for corporate shareholders. On the other hand, significant relationship between the 52-week-high price and probability of the acquisition offer being accepted could not be replicated in the data. Finally, it is discovered that other past price points exceeded the statistical significance of the 52-week-high price in explaining the variation in offer price indicating the possible existence of other price reference points of relevance to European investors.