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Mergers & Acquisitions

Determinants and value effects of early announcements in takeovers

Professor Dr. Nihat Aktas holds the Chair of Mergers and Acquisitions at WHU since 2013 and is Faculty Director of the Mergers & Acquisitions in Practice Program for executives. In this interview, he gives insights into recent research results on M&A negotiations and early announcements in takeovers.

WHU Executive Education: We know that in most countries listed acquirers are obliged to disclose their takeover offer to investors when they have signed a definitive merger agreement with the target. Does it mean that companies have no discretion over the timing of an M&A deal announcement?

Professor Nihat Aktas (NA): Usually, when an M&A is announced to the public, the acquirer has already signed the merger agreement with the target; but interestingly, in a recent study that will appear in the Journal of Corporate Finance¹ , together with my co-authors Guosong Xu and Burcin Yurtoglu, we find that a significant proportion of the deals were actually announced before any agreement has been reached between the acquirer and the target.

WHU Executive Education: Well, this must be the rumors, right?

NA: Not exactly. In fact, we find that even excluding explicit rumored bids about 7% of the M&A transactions were disclosed by the bidders voluntarily before the merger agreement. In the paper, we call these M&A disclosures “early announcements”.

WHU Executive Education: Voluntary early announcements? But we know that merger negotiations are highly confidential, and that acquirer managers certainly do not want any rival to jump into the process and push up the bidding prices.

NA: Well, what you said is only partially true – In a friendly merger negotiation, we certainly expect the bidder and the target to peacefully negotiate the deal terms in private until a final agreement is signed, and that a public announcement follows. But what about a negotiation in which for some reason target managers resist? In this case, the bidders might resort to the market, hoping that investors are their “last straw”. Especially, bidders who perceive the deal as highly synergetic are willing to make such early announcements because they are able to offer a high premium and because they are confident that low-synergy bidders cannot afford the costly early publicity. This is what we call a “signal” in finance. In return, investors understand this signal sent out by the bidder, so they may exert pressure on the target managers and help the deal go through relatively more smoothly.

WHU Executive Education: Have you found support for this signaling hypothesis?

NA: Indeed. We find that negotiation frictions predict an early announcement. In particular, lengthier negotiations, unsolicited bids, and bids in which the target is talking with several bidders at the same time are more likely to be disclosed earlier; in contrast, sale processes initiated by the target are less likely to have early announcements. We also find that these early announced deals have higher announcement returns – to the bidder, target and at the deal level – suggesting that these transactions are value creating. Bidders who announce early also pay higher premium, but importantly their stock price reactions are not worse, indicating that there is no overpayment in early-announced transactions on average.

WHU Executive Education: Can acquirer managers learn something from these findings?

NA: I believe the main takeaway from these findings is that public announcements are actually a strategic tool at the bidder’s disposal. If bidder managers know how to smartly use public disclosure as a signal, they have an advantage – in the case of M&As, for example, we show that these signaling bidders indeed achieve higher deal consummation rates, in spite of higher public competition. From an investor’s perspective, the signal, or the strategic early announcement, also leads to a more efficient takeover market.

¹Aktas, Nihat, Guosong Xu, and Burcin Yurtoglu, “She Is Mine: Determinants and Value Effects of Early Announcements in Takeovers”. Journal of Corporate Finance, Forthcoming. Available at: or

WHU Mergers & Acquisitions in Practice Program

WHU and PwC offer a joint Executive Education program for managers and (senior) executives. The program equips participants with the necessary tools and methods to address the main challenges related to mergers and acquisitions.

The program gives practical insights into the M&A business and will take place at WHU Campus Düsseldorf from June 6-8, 2019.

More information and application