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Does Merger Structure Matter?

Purpose - A friendly merger can be structured as a one-step transaction or a two-step transaction. For a variety of reasons, such as the fast speed with which two-step mergers are completed, there are concerns about whether target shareholders are disadvantaged by this structure in comparison with one-step mergers. The purpose of this paper is to examine the effects of the two types of merger structures from the shareholder point of view. Design/methodology/approach - In order to compare the shareholder wealth effects of merger structure, the authors control for deal and firm characteristics and the endogenous nature of the choice of transaction form. Specifically, the authors follow the literature to use a switching regression framework with endogenous switching to address endogeneity. Findings - No evidence was found of detrimental effects of two-step mergers on target shareholders. The findings suggest that at least some one-step mergers could benefit from using the two-step structure. The authors provide several explanations for the continued use of one-step mergers. Originality/value - Although there is some literature on freeze outs of minority shareholders, no one has examined two-step mergers in comparison with one-step mergers. The paper's results will be valuable to corporate managers, M&A advisors, regulators, and policy makers.