Unravelling Bidding Strategies in M&A Transactions: Evidence from the Private Phase of the Deal Process

Using details from the private phase of the takeover process, we examine how bidding strategies associate with key takeover outcomes. We find that higher initial offers are followed by fewer bid revisions and an increased likelihood of being the winning bidder. Though there is a positive relation between a higher first offer and the final premium, bidder returns at the first public announcement of the deal are positively related to the initial bid strength in target-initiated deals. In bidder-initiated transactions, stronger initial bids correlate with higher combined target and acquirer returns. In a similar vein, more precise initial bids also increase the likelihood of target acceptance and result in higher acquirer returns in case of auctions, bidder-initiated and cash-paid transactions.