Merger & Acquisition Behavior in European Banking : Empirical Testing of the Option to Delay Accepting a Tender Offer

This research is the first to examine the empirical predictions of a real option-pricing model using a large sample of data on mergers and acquisitions in the European Banking industry. We find empirical support for a model that estimates the value of an option to wait in accepting an initial tender offer. Market prices reflect a premium for the option to wait to accept an offer that has a mean value of 14% for a sample of 100 mergers or acquisitions in the European banking industry. We provide evidence that the size of the acquiring banks and the debt to equity ratio of the target bank play an important role in determining the premium paid in the acquisition process. The results have important implications for future M&A behaviour in the banking industry