Are Bidder-Initiated Takeovers Opportunistic?

By initiating the takeover process and paying for the target with temporarily overpriced shares, acquirers may successfully outbid even more efficient buyers. We present some first tests of this opportunistic market-timing hypothesis that requires the bidder—not the target—to initiate the deal process. The endogenous initiation-decision is treated as rational side-bets in otherwise synergistic takeovers. The empirical challenge, which we address, is to separate such opportunistic side-bets from rational payment design, where stock-financing hedges against target adverse selection. Evidence from reduced-form regressions, structural estimation, and wealth effects suggests that bidder-initiated and stock-financed takeovers primarily hedge against target adverse selection