Predicting the level of minority interest following a tender offer

Prior researchers have found that an average of 12% of target firms' outstanding shares remain untendered following completion of both successful and unsuccessful tender offers. Yet these shareholders had available to them an average 55.6% bid premium over the price of their shares one month prior to the tender offer. Why do such shareholders refrain from tendering given the extensive gains available through tender offers?

Theoretical developments and supporting empirical research in the finance and economics literature indicate that some target firm shareholders will attempt to refrain from tendering in order to free-ride on the acquirer's value-increasing efforts. The approach for the dissertation is to develop this line of research by examining, through multiple regression analysis, those factors which can help to predict the level of tendering by target shareholders. Variables measuring the extent of gains attainable through the takeover, the a priori probability of transaction success, target managements' actions in contesting the takeover, and the average level of target shareholders' tax brackets are all found to be significant predictors of differences between the percent of shares demanded by acquiring firms and the percent tendered by target firm shareholders.

The benefits of the research include applying these results to understand the factors which lead to minority interest balances found on consolidated financial statements. The owners of the shares left untendered following tender offers are minority shareholders. If not "squeezed-out" through merger or other means, these shareholders' ownership interests will be presented as minority interest on the acquiring firms' consolidated financial statements following the tender offer. One finding of the study is that most of these minority interests are eliminated through merger, and other means, prior to issuance of the next year-end financial statements.