Winner's Curse in Acquisitions (Academic Paper)

McNair Project

Winner's Curse in Acquisitions (Academic Paper)
Project Information
Project Title
Start Date
Deadline
Primary Billing
Notes
Has project status
Copyright © 2016 edegan.com. All Rights Reserved.

Three Big Pulls

SDC Mergers & Acquisitions

Add the following (A=L+E):

TargetTotalAssets	real, TASS: Taget Financials: Total Assets
TargetTotalLiabilities	real,  TLIA: Total Liabilities Last Twelve Months ($ Mil) 
TargetCommonEquity	real, COMEQ: Target Financials: Common Equity

Also nice:

TargetNetSales	real,  SALES: Net Sales Last Twelve Months ($ Mil)
TargetNetSales2	real, ?
TargetBookValuePerShare	real, BV: Book Value per Share Last Twelve Months ($) 
TargetIntangibles	real, IASS: Intangible Assets Last Twelve Months 
TargetRAndD	real, RND1: Research & Development Expense 1 Year Prior ($ Mil)

Added just in case:

Sales
Net Assets
Book Value (Perhaps needed for Tobin's Q?)

Session Details
---------------
Request   Hits    Request Description
   0        -     DATABASES: Domestic Mergers, 1979-Present (MA, OMA)
   1        -     Date Announced: 1/1/1985 to 10/11/2016 (Custom) (Calendar)
   2    300351    Target Nation : US
   3    257921    Acquiror Nation : US
   4    127852    Acquiror Public Status : P
   5     98102    Target Public Status : V, P
   6     63725    Deal Status : C
   7     52739    Percent of Shares Owned after Transaction: 100 to 100
   8              Custom Report: SDC_MA_Oct10v2 (Columnar) - Save As:
                  E:\McNair\Projects\Winner's Curse\Data\SDC_MA_Oct10v2.txt

  Billing Ref # : 1960756
  Capture File  : riceuniv.1960756
  Session Name  : SDC_MA_Oct10v2.ssh

Variables Pulled:
-----------------
Date Announced
Date Effective
Target Name 
Target Industry Sector 
Target Nation
Acquiror Name 
Acquiror Industry Sector 
Acquiror Nation
Pc of Shares Acq
Pc Owned After Transaction
Value of Transaction mil
Enterprise Value mil
Equity Value mil
Acquiror CUSIP
Acquiror Immediate Parent CUSIP
Acquiror Ultimate Parent CUSIP
Target Immediate Parent CUSIP
Target Ultimate Parent CUSIP
Target CUSIP
Acquiror Primary Ticker Symbol
Acquiror Ultimate Parent Primary Ticker Symbol
Target Primary Ticker Symbol
Target Ultimate Parent Primary Ticker Symbol
Target Ultimate Parent Ticker Symbol
Acquiror Primary NAIC Code
Acquiror Ultimate Parent Primary NAIC Code
Target Primary NAIC Code
Target s Ultimate Parent Primary NAIC Code
Number of Bidders
Status 
Value Est 
Value Amended Flag
Date Announced is Estimated
Consideration Structure
Number of Considerations Offered
Number of Considerations Sought
Consid Structure Description
Pc of Cash
Pc of Other
Pc of Stock
Pc of Unknown
Acquiror Full Name 
Target Name 
Acquiror City 
Target City 
Acquiror Zip Code
Target Zip Code
Acquiror State
Target State
Deal Currency Code
Target Bankrupt
Challenged Deal
Debt Restructuring
RecapDefense  
Government Owned Involvement Flag
Joint Venture
Restructuring
Acquiror is a Leveraged Buyout Firm
LBO 
IPO FlagY N 
Target is a Leveraged Buyout Firm
Merger of Equals
Reverse Takeover
Deal Began as a Rumor
Acquiror is a White Knight
White Knight Defense
Back End Defense
FlipOver Defense
Voting Plan Defense
Poison Pill
Creeping Acquisition
Repurchase Defense
Pacman Defense
Lockup FlagY N 
Target Lockup
Greenmail
Asset Lockup
Scorched Earth Defense
SelfTender Defense
Stock Lockup
Defense
White Squire
Acquiror Includes Employees
Acquiror Includes an ESOP
Significant Family Ownership of Target
Acquiror Lockup
Financial Acquiror
2 Step Spinoff
Acquiror Includes Mgmt
Open Market Purchases
Proxy Fight
Purpose Code
Related Deals
Foreign Provider of Funds
Stock Swap
Asset Swap Flag
Sweep the Street
SelfTender
Tender Offer
Unsolicited
Acquiror TermFee 
Target TermFee 
Forced vote provisions FlagY N
Walkaway
Acquiror Ultimate Parent Street Address 1
Acquiror Ultimate Parent Street Address 2
Target Ultimate Parent Street Address 1
Target Ultimate Parent Street Address 2
Acquiror Primary Stock ExchangeName
Target Primary Stock ExchangeName

COMPUSTAT

Use Compustat Industrial Annual (annual data)

Criteria:
-----------------
1970-1 to 2015-11
GVKEY, Entire Dbase
tab delimited, date in ISO8661

Variables:
----------
GVKEY
CONM
TIC
CUSIP
EXCHG
FYR
CURNCD
FYEAR
AT
CEQ
INTAN
EBITDA
REVT
SALE
NAICSH
SICH
MKVALT
PRCC_F
C
INDL
FS
STD

Note: TobinsQ is Market over book so MKVALT/AT (also pulled common stock and price)

CRSP

Use CRSP Annual, Daily Stock File

Criteria:
-----------------
PERMNO, Entire Dbase
1980-01-01 to 2015-12-31
tab delimited, date in ISO8661

Variables:
----------
PERMNO
CUSIP
NCUSIP
COMNAM
TICKER
PERMCO
EXCHCD
SICCD
NAICS
PRIMEXCH
PRC
VOL
NUMTRD
RET
SHROUT
VWRETD
EWRETD

Governance Measures

Projects --> Winner's Curse --> Data

Open the GovernanceVARS.txt

These are

• staggered boards
• limits to shareholder bylaw amendments
• limits to shareholder charter amendments
• supermajority requirements for mergers
• poison pills
• golden parachutes

To do list

Processing the SDC data:

• Find SIC codes concordance to get NAICS for old data
• Acquirer publicly traded ( must be AMEX, NASDAQ, or NYSE)
• Magic with CUSIPs : CUSIP is a nine digit number (possibly ten, ) Seven issuer, two issue, one check

CRSP processing notes:

• Estimation window 250 days ending 30 days before the Acq. must be at least 50 continuous days before the 30 days window.
• Returns and prices may contain codes. Import as var_char and reprocess?

Other notes:

• See page 9 of the paper for data processing notes.
• Data dictionary for SDC MA: http://www.edegan.com/repository/DD-ThomsonSDCMA.txt

Governance Variables

A list of governance variables can be found in: E:\McNair\Projects\Winner's Curse\Data\GovernanceVARS

Paper Discussion

Variables & Where to Find Them:

Variable	Location
Actual Return	CRSP
Abnormal Return	CRSP
Average Return	CRSP
Weighted Average Return	CRSP
Cumulative Ab. Return	CRSP
Boom	SDC
Competition	Compustat
Distance	SDC + google maps
IT Fixed Effect	SDC
Idiosyncratic Volatility	CRSP (Calculated)
Industry Fixed Effect	SDC
Momentum	CRSP (Calculated)
Private Financial Data	CRSP
Percent Cash	SDC
Previous Acquisitions	SDC
Sales	Compustat
Tobin's Q	Compustat
Turnover	CRSP
VC Fixed Event	SDC & VentureXpert
Governance	Compustat
Friendly vs. Hostile	SDC

Importing the CRSP data into the `winner' database (Amir)

Two important files:
Project --> Winner's Curse --> Data --> SQL --> CRSP_NOTES
Project --> Winner's Curse --> Data --> SQL --> CRSP_CODES

Data file is located in: E:\McNair\Projects\Winner's Curse\Data\CRSP-Oct10-c30cc89e52b70545-1.txt

Issue 1: The text file is 8 GB large and there's no way to open it in Textpad. I'll try to read the file in LogExpert which seems to do a neat job in in opening large files. Otherwise, I'll try to read the first few lines in the terminal. Update: I managed to open the file in LogExpert. However, extremely inefficient to scroll over the file.

I copied the file to Z:\WinnersCurse\CRSP-oct10

Entered the following command in the terminal to read the header:

head -1 CRSP-oct10.txt

CREATE TABLE CRSP (
 PermNo int,
 date date,
 EXcode int,
 SIC int,
 NCUSIP varchar(10),
 Ticker varchar(10), 
 Name varchar(100),
 NAICS int,
 PrimEx varchar(1),
 PERMCO int, 
 CUSIP varchar(12),
 Price real,
 VOL int,
 RET real,
 ShOut int, 
 trade int, 
 EQRET real,
 VRET real
);
 
 

We have unexpected data types in few columns. We'll first start by copying data into a table named CRSPtmp with varchar type for most of the fields.

CREATE TABLE CRSPtmp (
 PermNo varchar(10),
 date date,
 EXcode varchar(10),
 SIC varchar(10),
 NCUSIP varchar(10),
 Ticker varchar(10), 
 Name varchar(100),
 NAICS varchar(10),
 PrimEx varchar(1),
 PERMCO varchar(10), 
 CUSIP varchar(12),
 Price varchar(15),
 VOL varchar(10),
 RET varchar(10),
 ShOut varchar(10), 
 trade varchar(10), 
 EQRET varchar(10),
 VRET varchar(10)
);
 
\COPY crsptmp FROM '/bulk/WinnersCurse/CRSP-oct10.txt' WITH DELIMITER AS E'\t' HEADER NULL AS  CSV
-- COPY 64614281

CRSP2 Variable Issues (Jake)

permno-

date-

excode -

sic - letter "Z", value 711 (most are 4 digits),

ncusip -

ticker -

name -

naics -

primex -

permco -

cusip -

Price - Null values, negative numbers,

vol - null values

ret - null values, letter "B" as value multiple times, letter "C",

shout - null values

trade - null values

eqret -

vret -

Importing SDC Data into Winner Database

Create Table SDC as ( Date_Announced date, Date_Effective date, Tgt_Name varchar(80), Tgt_Industry varchar(50), Tgt_Nation varchar(10), Acq_Name varchar(10), Acq_Ind varchar(10), Acq_Nation varchar(10), Pc_Shares_Acq float, Pc_Owned_After_Transaction float, Value_Transaction_mil float, Enterprise_Value_mil float, Equity_Value_mil float, Acq_CUSIP varchar(10), Acq_Imm_prnt_CUSIP varchar(10), Acq_Ultimate_prnt_CUSIP varchar(10), Tgt_Immediate_prnt_CUSIP varchar(10), Tgt_Ultimate_prnt_CUSIP varchar(10), Tgt_CUSIP varchar(10), Acq_Primary_Ticker_Symbol varchar(10), Acq_Ultimate_prnt_Ticker varchar(10), Tgt_Primary_Ticker_Symbol varchar(10), Tgt_Ultimate_prnt_Ticker varchar(10), Tgt_Ultimate_prnt_Ticker varchar(10), Acq_Primary_NAIC varchar(10), Acq_Ultimate_prnt_NAIC varchar(10), Tgt_Primary_NAIC varchar(10), Tgt_Ultimate_prnt_Primary_NAIC varchar(10), Number_Bidders varchar(10), Status varchar(10), Value_Est varchar(10), Value_Amended_Flag varchar(10), Date_Announced_is_Estimated varchar(10), Consideration_Structure varchar(10), Number_Considerationsfered varchar(10), Number_Considerations_Sought varchar(10), Consid_Structure_Description varchar(10), Pc_Cash varchar(10), Pc_Other varchar(10), Pc_Stock varchar(10), Pc_Unknown varchar(10), Acq_Full_Name varchar(10), Tgt_Name varchar(30), Acq_City varchar(30), Tgt_City varchar(30), Acq_Zip varchar(10), Tgt_Zip varchar(10), Acq_St varchar(10), Tgt_St varchar(10), Currency varchar(10), Tgt_Bankrupt varchar(10), Chlng_Deal varchar(10), Debt_Restructuring varchar(10), RecapDefense varchar(10), Government_Owned_Involvement_Flag varchar(10), Joint_Venture varchar(10), Restructuring varchar(10), Acq_LBO_firm varchar(10), LBO varchar(10), IPO_FlagY_N varchar(10), Tgt_LBO_firm varchar(10), Merger_Equals varchar(10), Reverse_Takeover varchar(10), Deal_was_Rumor varchar(10), Acq_is_a_White_Knight varchar(10), White_Knight_Defense varchar(10), Back_End_Defense varchar(10), FlipOver_Defense varchar(10), Voting_Plan_Defense varchar(10), Poison_Pill varchar(10), Creeping_Acquisition varchar(10), Repurchase_Defense varchar(10), Pacman_Defense varchar(10), Lockup_FlagY_N varchar(10), Tgt_Lockup varchar(10), Greenmail varchar(10), Asset_Lockup varchar(10), Scorched_Earth_Defense varchar(10), SelfTender_Defense varchar(10), Stock_Lockup varchar(10), Defense varchar(10), White_Squire varchar(10), Acq_Includes_Employees varchar(10), Acq_Includes_an_ESOP varchar(10), Sig_Family_Ownership_Tgt varchar(10), Acq_Lockup varchar(10), Financial_Acq varchar(10), 2_Step_Spinoff varchar(10), Acq_Includes_Mgmt varchar(10), Open_Market_Purchases varchar(10), Proxy_Fight varchar(10), Purpose_Code varchar(10), Related_Deals varchar(10), Foreign_Provider_Funds varchar(10), Stock_Swap varchar(10), Asset_Swap_Flag varchar(10), Sweep_the_Street varchar(10), SelfTender varchar(10), Tender_offer varchar(10), Unsolicited varchar(10), Acq_TermFee varchar(10), Tgt_TermFee varchar(10), Forced_vote_provisions_FlagY_N varchar(10), Walkaway varchar(10), Acq_Ultimate_prnt_Street_Address_1 varchar(50), Acq_Ultimate_prnt_Street_Address_2 varchar(50), Tgt_Ultimate_prnt_Street_Address_1 varchar(50), Tgt_Ultimate_prnt_Street_Address_2 varchar(50), Acq_stockEx varchar(10), Tgt_stockEx varchar(10), Tgt_Net_Sales_LTM varchar(10), Tgt_Net_Assets varchar(10), Tgt_Total_Assets varchar(10), Tgt_Common_Equity varchar(10), Tgt_BVpersh_LTMUS varchar(10), Tgt_IntangibleA varchar(10), Tgt_R_D_One_Year_Prior varchar(10), Tgt_Total_Liabilities varchar(10))

Previous Papers

From the old wiki

• Old VC Acquisitions Paper
• Old VC Lit Review

Related Pages

• Governance Measures
• E-mail Chain on Winner's Curse
• Malmendier & Tate CEO Overconfidence

Resources

• SDC Platinum
• Venture Expert