Crossing Takeover Premiums and Mix of Payment : Empirical Test of Contractual Setting in M&A Transactions

The analysis of the offer premiums and means of payment should not be done separately. In the empirical literature these two variables are often considered separately and independently although they may have endogenous relation. Using a sample of European M&As over the 2000-2010 decade, we show that these two variables are jointly set up in a contractual approach. The relationship of the percentage of cash with the offer premium is positive: higher premiums will yield payments with more cash. We highlight that the payment choice is not a continuum between full cash and full share payment. The existence of two regimes of payment in M&A transactions is the first conclusion we draw. We analyze the major determinants of M&A terms when the offer premium and the means of payment are jointly set. The underlying rationale of asymmetry of information and risk sharing calculus is found significant in the setting of the agreement