Speculation Spreads in Swedish Tender Offers

Sammanfattning: This thesis examines speculation spreads, risk arbitrage returns, and potential ex ante bid characteristics related to it, after initial acquisition announcements of 178 public offers on the Stockholm Stock Exchange from 1995 to 2008. Following Jindra and Walkling (2004), we define the speculation spread as the percentage difference between the bid price and the market price of the target company one day after the initial offer announcement. In our sample, mean and median speculation spreads are 2.9% and 1.7%, respectively, although with considerable cross-sectional variation. 19% of the speculation spreads are negative, indicating that the post-announcement price is higher than the initial bid price. The reasons for the speculation spread’s cross-sectional variation, and its informational content, has not been previously studied on Swedish data. We find that speculation spreads are to a large extent associated with ex ante characteristics of the bid. Spreads are positively related to bid premium, bidder toehold and if the bidder is domestic, and negatively related to pre-bid share price runup and if the proposed payment is in cash. Furthermore, we find that an equally-weighted portfolio of takeover targets earns a significant abnormal return in the 1995-2009 period.