Do tender offers create value? New methods and evidence

Conventional techniques of estimating takeover value improvements measure only a fraction of the total gain and include revelation about bidder stand-alone value. To address these biases, we develop the probability scaling method, which rescales announcement date returns; and the intervention method, which uses returns at intervening events. Perceived value improvements are larger than traditional methods indicate. We cannot reject the hypothesis that bidders on average pay fair prices. Combined bidder-target stock returns are higher for hostile offers, lower for equity offers, and lower for diversifying offers. These effects reflect revelation about bidder stand-alone value, not differences in gains from combination.