The information effects of takeover bids and resistance

This paper tests whether takeover bids and takeover resistance by target management convey information to the market about the stand-alone value of target firms. When initial bids are made, analysts' consensus forecasts of stand-alone earnings do not change significantly for any group of takeover targets. This is consistent with the synergy view of mergers and inconsistent with the undervaluation theory. Consensus forecasts fall significantly when managers resist takeover. The decline is about 10% of the level of previously forecast earnings and is approximately equal whether the target is ultimately acquired or remains independent.