Sold Below Value? Why Takeover Offers Can Have Negative Premiums

Utz Weitzel, Gerhard Kling

Research output: Contribution to JournalArticleAcademicpeer-review


Many studies have acknowledged the existence of negative offer premiums where the initial bid undercuts the target's preannouncement market price. However, this phenomenon has not been explained. Negative premiums occur frequently and are no measurement error. We demonstrate theoretically and empirically that “hidden earnouts,” where target shareholders participate in the bidder's share of joint synergies, and corrections of overvaluation explain negative premiums. We find that target shareholders profit from the consummation of a takeover even if the announced offer has a negative premium. Our theory generalizes to low positive premiums with predictive power for the bottom 25% of all premiums.

Original languageEnglish
Pages (from-to)421-450
Number of pages30
JournalFinancial Management
Issue number2
Publication statusPublished - 1 Jun 2018
Externally publishedYes


We are grateful to Rajkamal Iyer (Editor) and would like to thank the anonymous referee for many constructive comments and suggestions. We would like to acknowledge the excellent copy-editing service provided by Wendy Jennings. We are grateful for financial support from the University of Southampton, Utrecht University and Radboud University Nijmegen. We thank Jaap Bos, Steven Kaplan, Michael Kirchler, Clemens Kool, Michael Koetter, Stephanie Rosenkranz, Karn Simonyan, Roy Thurik, and seminar participants at the Tinbergen Institute, Erasmus University Rotterdam, University of Innsbruck, Utrecht University, Georg-August-Universitaet Goettingen, German Institute for Economic Research, University of Southampton and EFMA. All remaining errors are ours.

FundersFunder number
Utrecht University and Radboud University Nijmegen
University of Southampton

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