The consequence of takeover methods : schemes of arrangement vs. takeover offers

This paper examined the effect of two selling processes in the UK market: takeover offers and schemes of arrangement. The latter is argued to allow a bidder to acquire a target company more cheaply and easily because schemes provide a lower threshold of the target company's shares before "squeeze-out" procedures may be used. To address potential self-selection bias arising from bidders' ability to choose their acquisition method, the propensity score matching methodology was applied to 803 takeovers of listed-target firms from 1995-2018. The results showed that the scheme of arrangement significantly reduces the target shareholders' gain relative to the takeover offer.