Litigation risk and strategic M&A & A valuations

• 成果类型: Article
• 署名作者: Imperatore, Claudia; Pundrich, Gabriel; Verdi, Rodrigo S.; Yost, Benjamin P.
• 署名单位: Bocconi University; State University System of Florida; University of Florida; Massachusetts Institute of Technology (MIT); Boston College
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2024.101671
• 发表日期: 2024
• 关键词: peer; mergers; NEGOTIATIONS; COMPETITION; arbitrage; selection; CHOICE; return; FIRMS; CEOS

摘要

We study the role of litigation risk in M&A &A valuations. Specifically, we hypothesize that litigation risk leads to strategic valuations in fairness opinions (FOs) obtained in M&A &A transactions. Employing a regulatory shock to merger litigation risk and focusing on the most common valuation techniques - peer firm comparables and DCF analysis - we find that target-sought FOs exhibit lower valuations when litigation risk is high. The effect is concentrated in deals with greater agency conflicts between target management and outside shareholders. Furthermore, downward-biased valuations reduce appraisal litigation but are also associated with lower premiums. In contrast to prior work suggesting that target-sought FOs are used to negotiate a higher takeover price, our findings imply that they are used, at least in part, to mitigate litigation risk and facilitate successful deal completion. Our findings are relevant to academics, practitioners, and regulators interested in M&A &A price formation, and highlight the role litigation plays therein.