Are Bidder-Initiated Takeovers Opportunistic?

Statistically, bidders initiate the deal process to acquire a US public target only in about half of the time, with the other half initiated by the target itself. By accounting for this endogenous initiation choice, we substantially increase power to test whether bidders time the deal initiation to opportunistically pay for the target with overpriced shares, possibly crowding out mode efficient potential buyers. Our alternative hypothesis is that bidders use shares as acquisition currency to hedge against target adverse selection (provided the target does not substantially undervalue those shares). Inconsistent with bidder opportunism, and regardless of who initiates the deal, bidders are more (not less) likely to use stock as deal payment for targets that are more (not less) precisely informed about bidder true value. Moreover, structural estimation shows that opportunistic bidders crowd out high-synergy rivals in only 6\% of transactions---whether the target or the bidder initiates the deal. Finally, conditional on bidder initiation, firm- and sector-specific market valuations further suggest that the typical deal process is sufficiently informative for targets to unravel bidder opportunism in stock-financed takeovers.