Tender offer premium

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Tender offer premium

The premium offered above the current market price in a tender offer.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Tender Offer Premium

A tender offer made above the fair market value of the offering.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Signaling theory, as it relates to share repurchase program announcements, largely begins when Masulis (1980a) finds positive announcement period returns around tender offers, Dann (1981) finds the positive returns do not come at the expense of other security classes, and Vermaelen (1981) finds the positive returns increase with increases in tender offer premiums, the fraction of shares sought, and the fraction of shares held by insiders.
Thus, we find support for the signaling hypothesis; that is, large tender offer premiums and high insider ownership appear to signal positive news to market participants.
Unlike previous research (Comment and Jarrell, 1991; Lie and McConnell, 1998), we find no differences between fixed-price and Dutch auction tender offer premiums. Also contrary to previous research, we find fixed-price tender offers target a significantly larger number of shares than do Dutch auction tender offers.
Sarkar, 1989, "Managements' View on Share Repurchase and Tender Offer Premiums," Financial Management l8, 97-110.
We follow Vermaelen (1981) and calculate the tender offer premium as the difference between the tender offer price and the closing stock price five days prior to the initial announcement of the tender offer standardized by the closing stock price five days prior to the offer for fixed-price offers.
Column 2 displays results from the first regression, which establishes our base model in which in addition to year fixed effects and a constant, we include the tender offer premium, the percentage of shares sought, the percentage ownership of the top five executives, and firm size as explanatory variables.
(9) Although the average percentage of shares sought in the self-tender offers is larger in Tax Regimes II and III, tender offer premiums are lower, which is consistent with taxes on capital gains influencing the premiums offered in self-tender offers.
This section presents a simple theoretical model of the tendering decision and describes the linear regression that we use to investigate the determinants of tender offer premiums.
In addition, tender offer premiums may also be lower for stocks that trade more often because investors' cost bases will be closer to the stocks' current market values.
(15) We, therefore, hypothesize that tender offer premiums may be inversely related to institutional ownership, because many institutional investment managers have little or no tax disincentive to tendering their shares and thereby realizing a capital gain.
The next variable, [FirmSize.sub.it], controls for any relation between the size of the firm and tender offer premiums. Vermaelen (1981) observes that larger announcement returns are associated with smaller firms for tender offers from 1962-1977, suggesting that share repurchases by smaller firms may offer larger premiums and thereby convey more information about the firm's future prospects.
The significant negative coefficient on the investor's estimated cost times the tax rate divided by one minus the tax rate supports the hypothesis that tender offer premiums are affected by investors' capital gains tax liabilities.