Using option prices to infer overpayments and synergies in m&a transactions

Journal Article (Journal Article)

In this paper, we use call option prices to identify synergies and news from merger and acquisition (M&A) transaction announcements. We find that M&A announcements result in large and approximately equal gains to the bidder and the target on average, with the combined gains being large enough to justify the premium paid to target shareholders. On average, M&A announcements release good news about targets, but bad news about bidders. This suggests that market prices understate true synergy gains, and helps reconcile the generally negative market-based evidence on value-creation in takeovers with their continued prominence in everyday business strategy. © 2012 The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail:

Full Text

Duke Authors

Cited Authors

  • Barraclough, K; Robinson, DT; Smith, T; Whaley, RE

Published Date

  • March 1, 2013

Published In

Volume / Issue

  • 26 / 3

Start / End Page

  • 695 - 722

Electronic International Standard Serial Number (EISSN)

  • 1465-7368

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhs119

Citation Source

  • Scopus