Winner's Curse in Acquisitions (Academic Paper)

McNair Project

Winner's Curse in Acquisitions (Academic Paper)
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Has project status
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Mini task 1, SDC Data Pull, preferably Jake

Pull the following list of variables: 1985 to present. If you think there should be another variable included feel free to add them to the following list. Import them into a SQL table. Make sure to document every step including the SQL codes. If possible save the data pull session.

• • CUSIP
  • Exchange and ticker
  • Company name
  • Acq transaction value
  • Acq announcement date
  • Number of bidders
  • NAICS codes for target and Acq.
  • Addresses

Mini task 2, COMPUSTAT and CRSP Data Pull, preferably Will

The same as task 1 for the following variables.

• Variables for CRISP(daily)
  • Stock price
  • Returns

• Variable for COMPUSTAT ( Everything 1980 to present)
  • Acq market value of assets
  • NAICS codes
  • Sales
  • GVKEY
  • intangible assets
  • TOBIN's Q

Mini task 3, 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

• Including public acquisitions
• Find SIC codes for the old data, also for the public firms that are now included.

• Data from SDC
  • Social criteria acquisitions announcement dates 1985 - present
  • Acquirer publicly traded ( must be AMEX, NASDAQ, or NYSE)
  • Target status is public or private
  • Acquirer and target are U.S. firms.
  • Acq of 100 percent of the firm and Acq. completed
  • GVKEY

• Variable list for SDC
  • CUSIP
  • Exchange and ticker
  • Company name
  • Acq transaction value
  • Acq announcement date
  • Number of bidders
  • NAICS codes for target and Acq.
  • Addresses
  • T
• Variables for CRISP(daily)
  • Stock price
  • Returns

• Variable for COMPUSTAT ( Everything 1980 to present)
  • Acq market value of assets
  • NAICS codes
  • Sales
  • GVKEY
  • intangible assets
  • TOBIN's Q

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. See page 9 of the paper for data processing notes. FROM

http://www.edegan.com/repository/DD-ThomsonSDCMA.txt

Governance Variables

KNIGHT BACKEND AWK BSIGINDCODE Target/Acquiror Significant Individual Codes. ESOP Employee Stock Ownership Plan Flag: Yes/No flag set to 'Y' where acquiror includes an Employee Stock Ownership Plan of the target company. See also EMP (Employee Participation Flag), where the acquiror includes employees of the target company.

CHA Challenging Bid Flag: Yes/No flag set to 'Y' where a third party launched an offer for the target while this original bid was pending. Challenging bids are covered under a separate record and deal number with challenger as Acquiror. CHOICE Choice of Considerations Flag: Yes/No flag set to 'Y' in a deal in which an acquiror offers the target shareholders alternative considerations. For example, shareholders may be offered the choice of a fixed number of shares or a different amount in cash. COMPETEACIDGEN Challenged Deal Acquiror CIDGEN. COMPETEACU Challenged Deal Acquiror CUSIP: CUSIP of the company that has made a competing offer for the target. CREEP Creeping Purchase Flag: Yes/No flag set to 'Y' when the acquiror has made creeping purchases; that is, accumulates a majority interest through a series of stake purchases, either through private or open market transactions. DEF Defense Tactic Flag: Yes/No flag set to 'Y' when the target employs a defensive tactic to countervail a takeover attempt by an unwanted suitor. Examples include poison pills, lock-ups, greenmail, white knights, etc. DEFTAC Defense Tactics Description: Description of all defensive tactics employed to thwart an unsolicited or hostile offer: DREP Defensive Repurchase Flag: Yes/No set to 'Y' when the target company buys back stock on the open market or in privately negotiated transactions as a defensive measure. This item is noted on the hostile or potentially hostile deal and on its related repurchase deal, indicating that the transaction is a defensive recapitalization. DSELF Defensive Self-Tender Flag: Yes/No flag set to 'Y' where the target company offers to buy back stock through a tender offer as a defensive tactic. This item is noted on the hostile or potentially hostile deal and on its related self-tender deal, indicating that the transaction is a defensive self-tender. EMP Employee Participation Flag: Yes/No flag set to 'Y' where acquiror includes employees of the target company. See also ESOP, where acquiror includes and Employee Stock Ownership Plan of the target company. EO Exchange Offer Flag: Yes/No flag set to 'Y' where a public company offers to exchange new securities for its outstanding securities. Only those offers seeking to exchange consideration for equity, or securities convertible into equity, are covered in the M&A database. See EXCHANGE OFFER DATABASE for transactions involving debt. EXTEN Number of Tender Extensions: Number of times, which the tender offer was extended. SEE DEXP FAM Target Company is Family-Owned/Controlled Flag: Yes/No flag set to 'Y' where at least a family or group of families controls 20% of the target company. If either a founding family or a non-founding chairman owns a substantial stake (defined as 20 %), FAM is indicated. ESOP Employee Stock Ownership Plan Flag: Yes/No flag set to 'Y' where acquiror includes an Employee Stock Ownership Plan of the target company. See also EMP (Employee Participation Flag), where the acquiror includes employees of the target company. FLIP Flipover Flag: Yes/No flag set to 'Y' when a flipover-type poison pill has an effect on a merger proposal. LOCKA Asset Lockup Flag: Yes/No flag set to 'Y' where the lockup involves an option to purchase target company assets, usually at a bargain price. LOCKS Stock Lockup Flag: Yes/No flag set to 'Y' if the lockup involves an option to purchase target or acquiror company stock, usually at bargain price. LOCKUP Lockup Flag: Yes/No flag set to 'Y' where the target grants the acquiror (or acquiror grants the target) an option to purchase stock or assets (e.g. a division or subsidiary) in order to make a competitive bid more expensive or less attractive. LOCKUP is noted on friendly deals when it is granted. MENUDEFTECH Defensive Techniques Code: Code for the defensive technique used by the target: MERCHANT Financial Acquiror Flag: 'Y' indicates that the acquiror is a financial company (buyout firm, venture capital company, merchant bank, commercial bank, etc.) and is acquiring more than 50% of the target, the target's main industry is non-financial and it must be acquired for financial rather than strategic reasons. MGMT Management Participation Flag: 'Y' indicates that the management of the target company is taking an equity interest in the target company as part of the acquisition. MOE Merger of Equals Indicator: Flagged 'Y' when the target and acquiror are considering their merger a Merger of Equals. Merger of Equals indicates that the target and acquiror in a stock swap transaction have approximately the same market capitalization, and the ownership of the new entity will be owned roughly 50/50 by the target and acquiror shareholders. Both companies should also have close to equal representation on the board of the new company. In almost all Merger of Equal's deals the articles will specifically state that it is a Merger of Equals. OMKT Open Market Purchase Flag: 'Y' indicates that stock was purchased in the open market rather than from a third party through a privately negotiated transaction or public securities offering. The transaction must be a Stake Purchase or a Repurchase (see Deal Type). POIS Poison Pill Flag: Yes/No flag set to 'Y' where the target company invokes a poison pill or the existence or enactment of a poison pill discourages the potential acquiror. Poison pill is indicated only if it affects the transaction. PROXYF Proxy Fight Flag: Yes/No flag set to 'Y' where the hostile bidder launched a proxy fight for control of the target company's board. PURPOSE_CODE Purpose Code: Three-letter code relating to the purpose/reason for a transaction. (E.g. PRD = allow to offer new products and services). RD Related Deals Flag: Yes/No flag set to 'Y' when 2 or more deals exist which cause or effect each other including, but not limited to, competing bids, divestitures or seeking buyers connected with a merger, defensive transactions, stakes before acquisitions and 2 or more deals having a combined total value. All related deal history events are displayed in one history file. REVERSE Reverse Takeover Flag: 'Y' indicates a merger in which the acquiring company offers more than 50% of its equity as consideration offered to the target company resulting in the target company becoming the majority owner of the new company. SCORCH Scorched Earth Flag: Yes/No flag set to 'Y' where the target company adopts strategies such as selling off assets in order to make itself a less attractive takeover target. Scorched earth is noted on the deal in which it is used as a defense. SFD Debt Securities Flag: Yes/No flag set to 'Y' when the transaction was financed in some portion by debt securities. SFF Foreign Lender Indicator: Yes/No flag set to yes if one or more providers of funds is a foreign bank, finance company or subsidiary in relation to the acquiror's location. SQUIRE White Squire Flag: 'Y' indicates when the target company attempts to thwart an unsolicited or hostile bid by selling a block (less than a majority) of shares (usually convertible preferred with special voting rights) to a friendly third party. A 'Squire' is very similar to a 'White Knight', the only difference being that the 'Squire' only acquires a blocking minority stake and does not acquire a majority. The result is the same however, the hostile bid is thwarted. SWAP Stock Swap Flag: 'Y' indicates a transaction in which the acquiring company exchanges equity in itself for equity in the target. The acquiror must be acquiring at least 50% of the target's equity or be acquiring the remaining interest up to 100% of the target's equity, and at least 50% of the consideration offered must be in the form of equity. SWEEP Sweeping Purchase Flag: Yes/No flag set to 'Y' where acquiror makes stake purchase(s) of all available shares with intention of gaining control. TEND Tender Offer Flag: Yes/No flag set to 'Y' when a tender offer is launched for the target. A tender offer is a formal offer of determined duration to acquire a public company's shares made to equity holders. The offer is often conditioned upon certain requirements such as a minimum number of shares being tendered. TERM Termination Fee Flag: Yes/No flag set to 'Y' where the target or acquirer has agreed to a termination fee agreement whereby a failure to consummate the transaction results in a payment of one party to another. Value of Termination Fee in Millions. TLOCKUP A Yes/No Target Lockup Agreement Flag. Set to 'Y' when the target is the owner of a lockup agreement. UNSOLICITED Deal Started as Unsolicited Flag: Yes/No flag set to "Yes" when acquiring company makes an offer for another company without prior negotiations. VPLAN Vote Plan Flag: Yes/No flag set to 'Y' when there is an attempt by the target to reduce the voting power of large shareholdings held by hostile raiders, usually through preferred stock dividends with different voting rights for different holders. Vote Plan is a type of poison pill. If vote plan = 'Y' then poison = 'Y'. WALKAWAY_FLAG True or False

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

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