Journal of Financial Economics 19 (1987) 183-310.

Korth-Holland

TWO-TIER AND NEGOTIATED TENDER OFFERS

The Imprisonment of the Free-riding Shareholder*

Robert COMMENT
New York tinwers~ty, Xew York. .VY ll)OOj, USA

Gregg A. JARRELL
The A kur Group. Inc.. Skokie. IL 60077.1035, USA

Received March 1986. final version received May 1987

We measure the ditTerential effects on shareholder wealth and tendering behavior of any-or-all.
two-tier and partial tender offers and find no evidence that shareholders are disadvantaged by
front-end-loaded corporate takeovers. Shareholders fare as well when the terms of an offer for
control are negotiated with target-firm management as when they are not. Most cash tender offers
executed between 1981 and 1984 were negotiated. and almost all two-tier offers aere negotiated.

1. Introduction

In deciding to sell their shares in a tender offer, investors compare the bid
value of the offer with the expected post-expiration value of any untendered
shares. A takeover is front-end loaded when the tender bid exceeds the value of
any unpurchased shares. Bradley (1980) and Grossman and Hart (1980) argue
that successful corporate takeover offers must be front-end loaded. Otherwise,
each shareholder will refrain from tendering in an attempt to free-ride on the
bidders value increasing activities and the tender offer will fail. A front-end-
loaded takeover discourages such free-riding by penalizing individual holdouts.
Front-end loading is controversial because its coercive potential is not
limited to the solution of free-rider problems. In theory, front-end loading can
give shareholders individual incentives to tender even when it is in their
collective interest to refrain. If shareholders are atomistic and cooperation is
costly. a front-end-loaded takeover may dominate an alternative, uniform offer
that would otherwise be preferred by all. Conversely, regulatory and contractual
or corporate charter proscription of front-end loading is also controversial for

*We thank Annette Paulsen, David MaJmquist, Michael Bradley and Michael Jensen (the
editor) for their suggestions. This paper is a substantial revision of a 1985 memorandum of the
U.S. Securities and Exchange Commission, Office of the Chief Economist. entitled The Economics
of Any-or-All. Partial and Two-Tier Tender Offers. This research was largely conducted while the
authors were employed by the SEC as Financial Economist and Chief Economist, respectively.

O304-405X/87/53.50 C 1987, Elsevier Science Publishers B.V. (North-Holland)

284 R. Comment und G..4. Jarrell. Tlto-rler and negomred render ofers

restricting bidders ability to overcome free-rider problems, thereby possibly

deterring socially beneficial takeovers.
Critics of front-end loading assume a market failure or a failure of private
contracting that has not been shown empirically to exist. To a degree, the
wealth effects for target shareholders due to any theoretical advantage for
bidders from front-end loading will be mitigated by competition among
bidders and by cooperation among target shareholders. Bidders share a
common bidding technology and stockholders share an agent in the person of
target management who can negotiate for their common interest. Also, the
target stock need not be held atomistically after open-market transactions
during the tender-offer period. Even though our sample predates the widespread
use of fair-price corporate charter amendments and poison-pill rights issues,
both advertised and justified as offering protection from unnegotiated offers in
general and from front-end loading in particular, we find little evidence that
shareholders are disadvantaged by either front-end loading or by tender offers
that are either initiated or executed before a written agreement is reached
between the bidder and incumbent target management.
Nevertheless, recent changes in corporate charters are consistent with
shareholder concern over front-end loading. Jarrell and Poulsen (1986) docu-
ment a recent, dramatic increase in the adoption of fair-price charter amend-
ments designed to regulate front-end loadin g. They find 354 such adoptions in
1983 or 1984, compared to 38 between 1979 and 1982. Fair-price amendments
are designed to deter front-end-loaded takeovers by requiring supermajority
voting approval of any merger that follows a higher-priced tender offer, unless
the terms of the merger are negotiated with the directors before the tender
offer. They are called fair-price amendments because the tender offer price is
deemed to be fair, rendering any less valuable back-end merger unfair in
comparison. With this charter provision, front-end loading is possible only if it
is negotiated with the target-firm management, if a supermajority of shares are
accepted in the tender offer, or if there is no subsequent merger.
We provide evidence, from 210 cash tender offers executed between 1981
and 1984, on the incidence and wealth. effects of front-end loading, with a
special focus on two-tier tender offers. Two-tier offers provide an effective
vehicle for front-end loading because they combine a limited tender offer (for
voting control only) with a subsequent (unilaterally approved) merger. Bradley
(1980) also provides evidence of front-end loading in partial tender offers but
he excludes tender offers made in conjunction with merger agreements and his
sample period largely predates the use of the two-tier form.
In general, a poisonpill rights issue is a warrant with an exercise price conditional on a merger.
The conditional exercise price is set so that the warrant is deep out of the money before a merger
and (arbitrarily) deep in the money after any merger. Issued as a dividend by the target firm, it
becomes an obligation of the surviving company after any merger. It also has a call provision so
that it can be canceled at the discretion of target management to clear the way for a negotiated
takeover.
 R. Comment and C.A. Jarreli. Two-ner and negotrated tender offers 235

We find considerably fewer two-tier tender offers than any-or-all offers. We

also find that average total premiums actually received by shareholders differ
insignificantly in executed two-tier and any-or-all tender offers. We look at the
average fraction of shares tendered into the various types of offers for evidence
that shareholders are stampedin g to tender to two-tier and partial offers and
find average participation to be surprisingly low in general and actually higher
in any-or-all offers. We consider every head-to-head contest in this time period
between a two-tier or partial offer and an any-or-all tender offer or merger
proposal and find only one case in which a l@.ver-valued two-tier or partial
offer prevailed over a higher-valued any-or-all offer.
We also provide evidence on the incidence and wealth effects of negotiated
tender offers. A negotiated offer is made in association with a written agree-
ment between the target-firm management and the bidder, typically a merger
agreement. These hybrid cases have not been widely recognized in the litera-
ture on corporate control, where mergers and tender offers have traditionally
been treated as distinct and mutually exclusive events. We find a surprising
frequency of contracting between raiders and incumbent managers. In our
sample, half of all initial cash tender offers are negotiated upon announce-
ment, four-fifths of all executed offers are negotiated before expiration, and at
execution only negotiated offers supplant initial negotiated offers. The terms
of almost all two-tier takeovers are negotiated before their expiration.
The bargaining power of target management apparent in these results
suggests that their action is one reason for the absence, on average, of an
adverse shareholder wealth effect from front-end-loaded takeovers. Since only
14 of our 210 target firms had fair-price amendments, and because our sample
period largely precedes the development of poison-pill rights issues, we attri-
bute this apparent bargaining power to managements authority to enter into
merger agreements and to grant a favored bidder lock-up options on the target
firms authorized but unissued shares. Most of the negotiated tender offers we
observe exhibit these characteristics. In our sample, target managers play a
leading role in brokering corporate control.
Many proposed changes in tender offer regulations and corporate charters
would deter offers that are either unnegotiated or two-tier. Our results show
that when an offer is executed, shareholders fare equally well on average
whether the initial or executed offer is any-or-all, two-tier, negotiated, or
unnegotiated. This indicates scant benefits to target shareholders from any
regulation-induced substitution among these types of offers, and such restric-
tions might deter some offers from being made at all. Potenrial premiums
available to target shareholders may, however, exceed our reported reafired
premiums. If so, and if any-or-all or negotiated offers can yield a greater part
of the potential premium, target shareholders might realize a net benefit from
a regulation-induced switch to any-or-all or negotiated offers. if not too many
offers are thereby deterred.
286 R. Comment and G.A. Jurrell. Two-tter and negottated tender offers

In section 2, we define two-tier and partial offers and consider possible

motivations for their use. In section 3 we describe our data and methodology.
Our empirical results appear in section 4 and our conclusions in section 5.

2. Two-tier and negotiated tender offers

Tender offers can be classified into three groups according to the maximum
number of shares to be accepted in the offer and the bidders intentions for the
untendered or unaccepted shares. An any-or-all offer specifies no maximum
and accepts all shares tendered, or none if the conditions of the offer are not
met. A two-tier offer specifies a maximum number of shares to be accepted
and is accompanied by at least the announced intention to obtain the
remaining shares in a follow-up merger if the conditions of the offer are met.
A partial offer also specifies a maximum number of shares to be accepted but
is not accompanied by any disclosed intention to acquire the remaining shares
in the near future. Bidders are required to disclose such intentions at the time
of their offer. The execution of either type of offer is often made conditional
on the receipt of a minimum number of tenders sufficient to guarantee voting
approval of a subsequent merger. In a two-tier offer this is typically also the
maximum number accepted. Partial offers are typically unconditional offers.
In each type of offer, the front-end value is given by the terms of the offer,
and almost all interfirm tender offers are for cash. The back-end value of an
any-or-all offer is given by the terms of a cleanup merger - typically cash at
the offer price. In two-tier takeovers, the back-end value is also given by the
terms of a follow-up merger - typically offering an exchange of securities. The
back-end value of a partial offer is the market value of the remaining traded
shares.
To varying degrees, all three types of tender offer can be front-end loaded.
Even in an any-or-all cash tender offer followed by a cash merger at the same
terms, the front-end payment is slightly more valuable by virtue of arriving
sooner. The potential for front-end loading is greater, however, when the
bidder limits shareholder participation in the front-end tender offer, as in
two-tier and partial offers.2
On average, target shareholders receive a weighted average or blended price
per share, weighting the price paid in the front- and back-end values by the
fraction of shares receiving each price, expressed as

P,=(FxP,)+((l-F)XP,),

Prorationing is required when more than the maximum number of shares is tendered into a
two-tier or partial offer. With prorationing, the same fraction of shares is accepted from each
tendering account so that each tendering holder obtains a proportionate share of the front- and
back-end consideration. Hence, the effects of front-end loading are uniform across tendering
shareholders. penalizing only those who do not tender.
 R. Comment and C.A. Jarrell, Two-ner and negorlated render offers 187

and a blended percentage premium over the previous market price as

((P&J - 1) x 100,
where
P, = blended price of the offer,
P, = per-share tender offer price,
P,,= pre-contest market price of target shares,
P, = post-offer market price of target shares,
F = fraction of shares purchased in the front-end offer.

An offer is front-end loaded when P, exceeds P,. At the time of their

tendering decisions, however, shareholders do not observe P,. They can infer
a market estimate of P,, using the formula, by taking the trading price during
the tender offer (just before the expiration of proration rights) as an estimate
of P,. Although the inference of a point estimate of P, in this way requires an
estimate of F (for shareholders purposes, the fraction of shares purchased out
of those expected to be tendered), an offer is front-end loaded whenever P,
exceeds the market price during the offer, regardless of F, so at the time of
their tendering decisions individual shareholders know whether the market
views the offer as front-end loaded, if not by how much. Bradley (1980)
provides confirming evidence of the accuracy of this market estimate of P,
and F.
By the above formula, any partial or two-tier offer has a matching any-or-all
offer in which shareholders receive the algebraically equivalent premium.
A two-tier or partial tender offer can increase the incentive for target share-
holders to tender, however, by offering a high P, in relation to P,. The
greater the difference, the greater is the opportunity cost to individual share-
holders of not tendering to an executed offer. In the absence of cooperation,
atomistic shareholders can be induced to tender into a two-tier offer even
though its blended price or premium is less than the uniform premium of an
existing or anticipated any-or-all offer.
As noted by Bradley (1980) this situation is analogous to the classic
prisoners dilemma. s In two-tier tender offers target shareholders play the role
of the prisoners in the dilemma. Like prisoners who must decide whether to
confess, they must decide whether to tender. If they resist tendering they risk
the worst outcome, in which their shares are all taken in a low-valued,
back-end merger because the other shareholders did tender and the offer
succeeded. If they tender, they are assured of receiving the moderate outcome

The Prisoners dilemma is created by placing two suspected perpetrators of a crime in separate
rooms and presenting each with the following proposition. If you confess and your partner does
not, your partner receives the harshest punishment and you go free. If your partner confesses and
you do not, you receive the harshest punishment and your partner goes free. If you both confess.
you both receive moderate punishment. If neither of you confesses, you both go free.
288 R. Commenl and CA. Jarrell. Two-lier and negottured tender offers

consisting of a prorata share of the higher-valued, front-end tender offer. The

best outcome is available only if all or most shareholders resist tendering so
that the offer fails.
The analogy between two-tier tender offers and the prisoners dilemma is
only approximate. Unlike policemen seeking confessions, two-tier bidders face
potential competition from other bidders seeking tenders. Also, unlike prisoners
in separate cells, shareholders are free to cooperate in their tendering decisions
when it is profitable for them to do so.
Bidders can compete in their use of front-end loading. Without increasing
the cost of acquisition, bidders can successively offer ever-greater spreads
between front- and back-end prices. The absolute lower limit on back-end
value is zero because of shareholders limited liability, and Easterbrook and
Fischel (1982) argue that the appraisal remedy available to minority share-
holders under state merger statutes provides a lower limit well above zero,
because such appraisals are based on the book value of assets and on market
prices before the takeover attempt. In any case, once the lower limit on the
value of the back-end is reached, further competition on front-end price
amounts to competition on the overall or blended price.4
Shareholders are not completely vulnerable to front-end loading even in the
absence of competition among bidders, since concerted, organized refusal to
tender to an inferior offer breaks the prisoners dilemma. Consequently, the
wealth effect of front-end loading is limited by the marginal cost of cooper-
ation by target shareholders. DeAngelo and Rice (1983) argue that anti-take-
over charter provisions encourage a cooperative response by target share-
holders to an offer for control. As described above, a fair-price provision in a
corporate charter has this effect. Meeker and Joy (1980) note that dispersed
stockholders have incentives to form a coalition to negotiate with a bidder,
and Demsetz (1983) argues that this can be accomplished through the forma-
tion of large-block holdings by takeover specialists and arbitrageurs over the
course of a tender offer. We argue that the existing agency relationship
between target management and shareholders provides yet another opportun-
ity for cooperative behavior.
Since representation by a management team and board of directors is
shareholders apparent least-cost way of organizing the target firms everyday
decision making, it is their presumptive least-cost vehicle for cooperation in
most takeover situations as well. Although agency problems are likely to be
greater here than with everyday management actions, control-related severance
contracts provide a direct means for making side-payments from shareholders
to managers to control their incentives in the event of a change in control. In
exchange for influence over the terms of an offer, management can guarantee a
minimum profit to a bidder through its ability to confer a relative advantage
4Bradley and Rosenzweig (1986) describe how target management can join this competition
with publicized open-market purchase programs and self-tender offers that are front-end loaded.
 R. Comment und G.A. Jarrell. Two-tier and negotutted tender ofleers 289

on a favored bidder. It can enter into a merger agreement with a favored

bidder and can grant that bidder a lock-up option to purchase a block of new
shares or managements own shares.
The signing of a merger agreement establishes rights that are valuable to
bidders by virtue of the breach-of-contract penalties associated with their
abridgement. Once granted, the redemption of these merger rights and lock-up
options becomes a marginal cost for any third-party bidder. All else equal.
competing bids will be deterred because the target firm is more valuable to the
holder of these rights than it is to any third-party bidder. In addition, a merger
agreement may reduce uncertainty about the value to be received by share-
holders in the back end of a takeover. In any case, once merger rights are
extant with the signing of a definitive agreement. third-party bidders must
negotiate with the parties to the agreement, target management and the
favored bidder. Consequently, the ability to grant merger rights increases
managements bargaining power, and hence its ability to represent the collec-
tive interests of target shareholders during takeover negotiations.
To similar effect, target management can grant a favored bidder a lock-up
option on the target firms shares that have been authorized by shareholders
but are as yet unissued. In our sample, the authorized but unissued shares
available to be optioned to a favored bidder typically amount to 20% of the
issued shares (as limited by certain stock-exchange listing requirements). A
favored bidder can also be given an option to buy managements personal
shares. In either case, these options are typically exercisable at the offer price
of the negotiated bid, so the optioned shares can be profitably tendered by the
favored bidder into the front end of any higher-valued competing offer. In
addition to guaranteeing a minimum profit to the favored bidder. the granting
of options on new shares forces a third-party bidder (including a two-tier
bidder) to increase the maximum number of shares to be accepted in a tender
offer to the (now greater) number required to unilaterally approve a merger
after the option is exercised and the new shares are outstanding.
Since lock-up options and merger agreements deter subsequent competing
offers, negotiated tender offers are an effective means of providing prospective
bidders with incentives to bid. In exchange, bidders can agree to forego the use
of front-end loading to expropriate the wealth of shareholders as a group.
Some front-end loading may be useful even in negotiated offers, however, to
solve free-rider problems by penalizing individual shareholders who attempt to
hold out. In addition, there are at least four other possible bidder motivations
for two-tier and partial offers.
The first motive is the result of a timing advantage for two-tier and partial
offers executed between 1979 and 1982, when the minimum offer period was
effectively ten calendar days for prorationed offers and twenty business days
otherwise. Earlier commitments by target shareholders may benefit bidders by
limiting bidder competiton or shareholder cooperation. Although this timing
290 R. Comment and GA. Jarrell. Tm-rler and negotiated render offers

advantage was eliminated in December 1982. when the SEC extended proration
rights throughout the twenty business-day minimum offer period, the two-tier
and partial offers in our 1981-1984 sample period may have had this
motivation.
The second motive also stems from a regulation-induced timing advantage.
Because of the delay in registerin g and issuing publicly traded securities,
takeovers can be accomplished more quickly as cash transactions. Capital-
market imperfections, however, may make it prohibitively costly to finance a
cash any-or-all offer for relatively large target firms. A two-tier offer allows a
cash-constrained bidder to gain voting control of a target without waiting for
regulatory review of the registration statement of the securities to be ex-
changed for the targets remaining shares.
The third motive is that bidders demanding only partial ownership will
prefer partial offers to any-or-all offers. A bidder with a limited goal must
estimate the supply response to a given bid price when using an any-or-all
offer. By specifying a maximum number of shares to be accepted in a partial
offer, the bidder can eliminate the risk that too many shares will be tendered.
Also, by specifying a maximum number of shares to be accepted for cash,
bidders can better control their cash outlay and can limit the risk that the
price offered will attract more shares than sought.
Finally. the two-tier form of merger allows some shareholders to continue to
defer personal capital-gains taxes without the bidders having to forego the
timing advantage of a cash tender offer described above. As long as less than
half of the shares are taken for cash, a two-tier transaction with a share-
exchange merger as a back end qualifies as a tax-free exchange of shares for
those target shareholders who do not tender. For tax purposes, the two tiers
are treated as a single transaction. If more than half the shares are taken for
cash, all shareholders may be required to recognize an immediate capital gain
or loss, rather than just those who tender.j See Gilson (1986, p. 457).
Summarizing, front-end loading can counter shareholder opportunism by
reducing the incentives of individual shareholders to hold out in an attempt to
free-ride on the bidders value-increasing changes, but this same coercive
potential can allow (monopsonist) bidders to expropriate the wealth of non-
cooperating shareholders as a group. Two-tier tender offers are an effective
vehicle for front-end loading and may thus be used to serve either purpose.
Competition among bidders in front-end loading, however, amounts to
competition in overall value to shareholders. Also, only atomistic, non-

The 1987 tax changes disfavor ah-cash transactions in relation to their previous treatment by
eliminating the General Utilities doctrine which had allowed an avoidance (through liquidation)
of the targets corporate-level taxable gain on any asset write-up. Bidders who want to use as
much cash as possible and still avoid a corporate-level taxable gain can do either a two-tier cash
tender offer for up to half the shares with a share-exchange for the rest, or a single-step merger
with shareholders allowed to elect to receive cash for up half the outstanding shares.
 R. Comment und GA. Jurrell, Tuo-rrer and negorrated render offers 291

cooperating shareholders can be disadvantaged by the prisoners dilemma of a

front-end-loaded takeover, and ownership of the targets shares need not be
diffused at the expiration of the minimum offer period. Finally, even without
bidder competition or a coalescence of ownership during the offer, share-
holders collective interests can be represented by management in a negotiated
takeover.

3. Data and methodology

3.1. Sample description

The tender offers considered in this study were identified from the U.S.
Securities and Exchange Commissions (SECs) computer list of 14D-1 filings.
Anyone making a tender offer must file a 14D-1 statement with the SEC,
within five days of the public announcement of the offer, disclosing the terms
of the offer and their intentions regarding any unpurchased shares. The bidder
also files amended statements disclosing any material changes as well as the
results of the offer upon expiration. From these filings, we take all cash offers
for common stock made by bidders owning less than 50 percent (before any
offer-related agreements to purchase), initiated between January 1981 and
December 1984, for New York and American Stock Exchange and
frequently-traded OTC firms. Information on smaller firms is difficult to
obtain. We exclude non-cash offers to simplify our calculations of the value of
the offer.
In most of the analysis we consider only executed tender offers - those in
which at least some shares are purchased. While we report the incidence of all
initial cash tender offers (the first filed) that are withdrawn without being
executed (but otherwise satisfy our criteria). we do not consider their wealth
effects because they are relatively few in number and because we are primarily
interested in the relative frequency and wealth effects of tender offers which
survive a competitive process. Because they fail to overcome e,xisting market
forces, contracts, and regulations, these offers that are withdrawn provide little
evidence on whether tender offers should be further regulated with respect to
front-end loading, or on whether the demand for new target defensive steps is
consistent with stated justifications which cite the coercive potential of two-tier
offers.
Our selection rules result in a sample of 241 initial and 210 executed cash
tender offers. A total of 123 initial offers for common stock were excluded
completely. These include 81 offers for thinly-traded OTC firms. 22 offers by
parent corporations, and 19 non-cash offers. The 31 initial cash offers which
were withdrawn and not followed by an executed offer consist of three that
were revised to share-exchange mergers with the bidder, nine that were
withdrawn in the face of a third-party merger, eight that were withdrawn by
agreement with target-firm management. five that were blocked by courts or
regulators, and six that were unilaterally withdrawn by the bidder.

3.2. Classification of ofers

We classify offers as any-or-all if the original or amended 14D-1 filing with

the SEC by the bidder specifies no maximum number of shares to be accepted
in the offer. If a maximum number of shares is specified, we classify the offer
as two-tier if the bidder discloses an intention to acquire the remaining shares
in a subsequent merger. and as partial otherwise. Failed two-tier and partial
offers are not reclassified as any-or-all offers if they are undersubscribed with
all shares purchased.
We classify offers according to whether or not they are negotiated with the
target firms management. A negotiated offer is defined here as one made in
association with a written agreement. Data are available from original and
amended 14D-1 filings on the nature of any written agreements between target
management and the bidder. These include formal plans and agreements to
merge, stock-option agreements that give a bidder the right to purchase the
target firms authorized but unissued shares, options to purchase certain assets.
and stock-purchase agreements that give a bidder the right to purchase the
shares held by target managers and other insiders if they are not tendered.
Employment agreements with target managers do not, by themselves, qualify
an offer as negotiated here, but these are rare in the absence of merger
agreements. These written agreements also call for target management to
recommend the offer to their shareholders. For brevity, we measure and report
separately the standing of bidder/target negotiations at the two ends of the
observable process of negotiation: as of the public announcement of the initial
offer and as of the expiration of the offer that is executed. These two
observations may involve the same offer or they may correspond to entirely
different offers made by different bidders.

3.3. Blended premiums

We compare average blended premiums over the various classes of tender

offer: negotiated and unnegotiated any-or-all, two-tier, and partial offers. The
blended premium is the percentage change in share price from the pre-offer
market price to the blended price of the offer. Blended prices are a weighted
average of the tender offer or bid price and the post-expiration market price.
We obtain the cash bid in the executed offer (Pr) from either the original or
the appropriate amended 14D-1 filing. Bidders usually pay a solicitation fee to
brokers to cover transactions costs so sellers receive the full cash bid.
For the pre-contest market price of the target firms shares (P,) we use the
closing price (bid price for OTC firms) twenty trading days before the first
 R. Comnwnr und G.-l. Jarreli. Two-rrer uminegormedrendero/frrs 293

announcement of any kind of tender offer or merger proposal for the target
firm. This earlier price is used to lower the probability that leakage of
information about an impending offer has raised P,, above its value in the
absence of information about a contest for control. In three cases. however. we
use a price less than twenty days before the offer because earnings an-
nouncements by the target firm during that time caused a substantial decline
in the market price. Announcement dates were obtained from the Dow Jones
News Retrieval Semice or the Wall Street Journal company index.
We estimate the value of the back-end consideration (Pe) in each type of
offer as the closing market price (or the bid price for OTC firms) two days
after the effective offer deadline. In any-or-all offers and undersubscribed
two-tier or partial offers. shares are accepted throughout the offer period. In
oversubscribed two-tier and partial offers, shares tendered after the last day of
prorationing rights are all returned to shareholders so the effective deadline in
these offers is the last day of prorationing rights.
In partial offers and unnegotiated two-tier offers the face value of the back
end is not specified in the offer, so the market price of the shares after
expiration is the only available estimate of P,. Even when the terms of a back
end are specified in a negotiated two-tier offer. the actual value to shareholders
may differ from face value as stated by the bidder, so here the post-expiration
market price is a more accurate measure of back-end value. This is true even
when the back end is a cash payment, since receipt of the merger price is
deferred until after a vote by shareholders. and the market price reflects the
present value of the deferred payment. Of necessity, we do use a stated cash
merger price rather than a market price in well-subscribed, any-or-all offers
where trading ceases before expiration and no post-expiration market value is
available, but here F is close to one and P, contributes little to P,. As
calculated, blended percentage premiums are not risk-adjusted or calculated
net of marketwide price changes during the offer. Nominal values of P, and
P, better approximate the alternatives that shareholders actually face when
deciding to tender.
Investors make their tendering decisions by comparing P, with the expected
value of P,. These expectations are not measurable, so of necessity we use the
realized value of P, two days after the tendering deadline. Average realizations
are likely to be unbiased estimates of the expected values, and our conclusions
are largely based on these averages. We report the frequency distribution of
our estimate of P,/P, (table 5), however, and this reported distribution may
exhibit a greater spread than would be the case if the true expected value of P,
were used to calculate this measure.
To weight the front and back ends in the blended price calculation. we use
the number of shares actually purchased in the tender offer, as reported in the
final amended 14D-1 filing. as a fraction (F) of the total number of shares
available to be tendered. Shares available for tendering are calculated as the
294 R. Comnwnr und GA. Jurrell. Two-tter und negotrated trnder ofen

total number of shares outstanding plus the number of shares reserved for
conversion of convertible debt and preferred stock (we assume conversion),
less the number of shares known to be withheld from the offer by large-block
holders. Shares known to be withheld are primarily those that the bidder owns
before making the tender offer or that he has contracted to purchase separately
after the offer.

4. Empirical findings

4.1. Number and relaticre frequency

Table 1 presents a breakdown by year and type of 241 initial cash tender
offers between January 1981 and December 1984, and again for 210 executed
offers. Among initial offers, 145 any-or-all offers account for 60 percent of the
total and 96 partial and two-tier offers account for the remaining 40 percent.
Just over half of all initial offers were for any-or-all shares in each of the first
three years, rising to 73% in 1984. Among executed offers, 144 any-or-all offers
account for two-thirds of the total and 66 partial and two-tier offers account
for the remaining one-third. The relative frequency of executed any-or-all
offers increased steadily over the four years, from 57% of the total in 1981 to
81% in 1984. The incidence of two-tier offers fell from 21% of the total in 1981
to 11% in 1984.
Table 1 also presents the number of negotiated and unnegotiated cash
tender offers by year. Half of all initial offers are negotiated upon announce-
ment and the terms of four out of five executed offers are negotiated before
expiration. The proportion of executed offers that are negotiated increases
steadily from 73% of the total in 1981 to 92% in 1984. Formal contracting
between raider and manager appears to be the empirical rule rather than the
exception, whereas front-end-loaded two-tier and partial offers appear to be
the exception rather than the rule.
Table 2 cross-classifies initial and executed offers to show the disposition of
initial offers. Executed offers tend to be of the same type as corresponding
initial offers. Initial any-or-all offers are the most likely to be followed by the
same type of executed offer, with 89% (129 of 145) followed by any-or-all
executed offers and with 10% followed by no tender offer. In only two
instances was a two-tier offer executed when the initial offer was an any-or-all.
Initial two-tier offers are followed by executed two-tier offers 74% of the time
(35 of 47) with 11% followed by no tender offer. Initial partial offers are
followed by executed partials 53% of the time (26 of 49) with 24% followed by
no executed tender offer at all. Overall, 13% (31 of 241) of initial tender offers
resulted in no executed tender offer.
Table 2 also presents the disposition of initial negotiated offers. Virtually all
are executed as negotiated offers by the initial bidder. Of the 120 tender offers
 R. Comment und GA. Jurrell, THO-tier und ne3otuted render ofers 295

Table 1
Number of initial and executed cash tender offers by year: initial offers by type and negotiation
btatub at announcement and executed offers by type and negotiation status at expiration
(percentages in parentheses).

Type and
1981 1982 1983 1984 Total
negotiation
status of offer V (oc) ,v (4c) !V (8) x (c) ,v (cd)

litid offers
Any-or-all 34 (54) 32 (52) 18 (55) 61 (73) 145 (60)
Two-tier 10 (16) 18 (30) 10 (30) 9 (11) 47 (20)
Partial 19 (30) 11 (18) 5 (15) 14 (17) 49 (20)
Negotiated 28 (44) 27 (44) 14 (42) 51 (61) 120 (50)
Unnegotiated 36 (56) 34 (56) 19 (58) 33 (39) 121 (50)
Total 63 (100) 61(100) 33 (100) 84 (100) 241 (100)

E.~ecuted offerx
Any-or-all 32 (57) 31 (61) 23 (74) 58 (81) 144 (68)
Two-tier 12 (21) 14 (27) 5 (16) 8 (11) 39 (19)
Partial 12 (21) 6 (12) 3 (10) 6 (8) 27 (13)
Negotiated 41 (73) 40 (78) 25 (81) 66 (92) 172 (82)
Unnegotlated 15 (27) 11 (22) 6 (19) 6 (8) 38 (18)
Total 56 (100) 51 (loo) 31(100) 72 (100) 210 (100)

An initial cash tender offer is the first one filed with the SEC for the common stock of a target
firm. An executed tender offer is one in which some shares are purchased. Initial and executed
offrrs need not be made by the same bidder. although most are. and initial offers may not be
executed. An any-or-all offer accepts all tendered shares if any minimum condition is met. In a
two-tier tender offer the bidder accepts a maximum number of shares under prorationing and
intends to effect a subsequent merger. In a partial tender offer the bidder accepts a maximum
number of shares under prorationing and does not intend to effect a subsequent merger. A
negotiated tender offer is one made under a written agreement with the management of the target
firm. as of the start for an initial offer and as of its expiration for an executed offer.

in our sample that started out negotiated, two were blocked by the FTC and
not followed by any other offer, but not one was followed by an unnegotiated
executed offer. Of those that begin and end as negotiated offers. only three
were initially negotiated with a bidder unaffiliated with target managers and
then later withdrawn in favor of an offer negotiated with some other, third-party
bidder. In two of these cases the winning bidder paid the losing bidder a fee to
relinquish its claims.6 Management cannot issue legally binding merger rights

In one case. Texaco reached a merger agreement and made a tender offer for Getty Oil despite
Pennzoils prior agreement in principle to purchase Getty. In a second case, Dart & Kraft
accepted a payment of $18 million to abandon its definitive merger agreement with CFS
Continental in deference to a negotiated bid by A.E. Staley. In a third case. First Union Corp.
abandoned its definitive agreement to merge Florida Coast Banks in deference to a negotiated
offer by Bamett Banks of Florida and received over $13 million from Bamett (20% of the total
purchase price) by tendering new shares obtained by exercising its lock-up option.
 296 R. Comment und GA. Jarrell. Two-trer and negorrared render ofers

Table 2
Disposition of initial cash tender offers in the period 1981-1984; type of initial offer by type of
offer executed. and negotiation status of initial offer by negotiatron status of executed offer
(percentages in parentheses).

Type of offer executed

No offer
Tvpe of
Anv-or-all Two- tier Partial executed Total
initial I
offer iv (8) ,V(8) -A (oc) N (sg) N (cf)

Any-or-all 129 (89) 2 (1) 0 (0) 14 (10) 145 (100)

Two- tier 6 (13) 35 (74) 1 (2) 5 (11) 47 (100)
Partial 9 (18) 2 (4) 26 (56) 12 (24) 49 (loo)
Total 144 (60) 39 (16) 27 (11) 31 (13) 241 (100)

Type of offer executed

No offer
Tvpe of
Negotiated Unnegotiated executed Total
initial
offer IV (9) N (%) N (8) N (%)

Negotiated 118 (98) 0 (0) 2 (2) 120 (100)

Unnegotiated 54 (45) 38 (31) 29 (24) 121(100)
Total 172 (71) 38 (16) 31 (13) 241 (100)

An initial cash tender offer is the first one filed with the SEC for the common stock of a target
firm. An executed tender offer is one in which some shares are purchased. Initial and executed
offers need not be made by the same bidder and initial offers need not be executed. An any-or-all
offer accepts all tendered shares. In a two-tier tender offer the bidder accepts a maximum number
of shares under prorationing and intends to effect a subsequent merger. In a partial tender offer
the bidder accepts a maximum number of shares under prorationing and does not intend to effect
a subsequent merger. A negotiated tender offer is one made under a written agreement with the
management of the target firm. as of the start of initial offers and as of the expiration of executed
offers.

negotiated with management-led buyout groups and later withdrawn in favor

of offers negotiated at arms length with other bidders.
The evidence that it takes a negotiated offer to beat a negotiated offer
suggests that target-firm managers can wield considerable influence over the
outcome of control contests. Their apparent influence does not fully extend to
the prevention of offers, however, as unnegotiated offers are executed fol-
lowing 31% (38 of 121) of the initial unnegotiated tender offers. One-fourth (29
of 121) of the initial unnegotiated tender offers are not followed by any
executed tender offer and 45% (54 of 121) are followed by negotiated offers.
Target managements weak ability to prevent an offer from being executed
after an unnegotiated offer is initiated is consistent with our claim that the
apparent bargaining power of target management is attributable to its ability
to issue merger rights and lock-up options to a favored bidder. The rarity with
which merger rights are challenged and the payments received when they are
and lock-up options to itself, and a number of tender offers were initially
 R. Comment and GA. Jurreil. Two-tter and negotiated tender offers 297

Table 3
Number of executed tender offers and average blended premiums for offers executed in the period
19X1-1984. by type and negotiation status of the executed offer and by type and negotiation
status of the corresponding initial offer (percentages in parentheses).

Initial status Status at execution

Nego- Unnego- Nego- Unnego-
Type of offer tiated tiated Total tiated tiated Total

AIt),-or-crll
Number 131 126 144
Percent (2, (::, (100) (88) (ii, (100)
Mean premium 50.7 68.0 56.1 56.5 57.1 56.6
Std. dev. premium 26.4 31.5 29.1 29.0 21.5 28.7
Two-trer

Number (ii, 21 36
Percent (50) (1:) (92) (i, (12,
Mean premium 56.9 49.6 53.2 56.8 46.1 55.9
Std. dev. premium 45.9 24.0 36.3 38.3 37.7 37.9
Partrul
Number 30
Percent (1;) (81) (12, (E, (& (lZ,
Mean premium 14.7 42.0 36.9 20.2 24.4 22.8
Std. dev. premium 8.8 31.1 30.2 12.2 21.5 18.4
Totol

Number 118 92 210 172 (Z, 210

Percent (56) (44) (100) (82) (loo)
iMean premium 49.7 55.3 52.1 54.5 41.6 52.1
Std. dev. premium 31.2 31.8 31.5 31.5 29.6 31.5

A tender offer is included if some shares are purchased for cash. An any-or-all offer accepts all
tendered shares. In a two-tier tender offer the bidder accepts a maximum number of shares under
prorationing and intends to effect a subsequent merger. In a partial tender offer the bidder accepts
a maximum number of shares under prorationing and does not intend to effect a subsequent
merger. A negotiated tender offer is one made under a written agreement with the management of
the target firm as of the announcement of the initial offer and as of the expiration of the executed
offer. The initial offer is the first offer made by any bidder. not necessarily the bidder making the
executed offer.

abandoned indicate the value of merger rights and further confirm that target
managers wield bargaining power that can be used to alter the terms of
executed tender offers, including the use of front-end loading in two-tier offers.
Table 3 cross-classifies executed offers and their corresponding initial offers
by type and by negotiation status. Two-tier offers are almost all negotiated at
execution, and are slightly more frequently negotiated at that stage than are
any-or-all offers [92% (36 of 39) compared to 88% (126 of 144)]. Half of all
initial two-tier offers (21 of 42) are negotiated from the start, compared with
two-thirds of any-or-all offers (90 of 131) in cases where an offer is executed.
Partial offers are the least likely to be negotiated. Few initial partial offers (7
298 R. Comment und GA. Jarrell. Tno-tter und negotruted ruder offers

Table 4
Distribution (number and percent) of blended premiums received in 210 cash tender offers
executed in the period 1981-1984. by type of offer executed (percentages in parentheses).

Percent blended Type of offer executed

premium Any-or-all Two-tier Partial Total

Less than OCr 0 (0) 1 (3) 0 (0) 1 (1)

0 to 209 11 (8) 3 (8) 12 (44) 26 (12)
20 to 4occ 34 (24) 10 (26) 11 (41) 5 (26)
40 to 60% 48 (33) 11 (28) 2 (7) 61 (29)
60 to 80% 22 (15) 8 (20) 2 (7) 32 (15)
80 to 100% 15 (10) 4 (10) 0 (0) 19 (9)
More than 1009 14 (10) 2 (5) 0 (0) 16 (8)
Total 144 (100) 39 (loo) 27 (100) 210 (100)

A tender otTer is included if some shares are purchased for cash. An any-or-ail offer accepts all
tendered shares. In a two-tier tender offer the bidder accepts a maximum number of shares under
prorationing and intends to effect a subsequent merger. In a partial tender offer the bidder accepts
a limited number of shares under prorationing and does not intend to effect a subsequent merger.

of 37) and somewhat more executed partial offers (10 of 27) are negotiated.
We show below (table 6) that partial offers typically result in a less-than-
majority interest in the target firm, whereas two-tier and any-or-all offers
typically result in majority control by the bidder before any second-step
merger. So, those offers that typically result in majority corporate control,
two-tier and any-or-all, tend to be successfully negotiated with target managers.
The type of offer that typically results in less-than-majority control, the partial
offer, is generally not negotiated.

4.2. Blended premiums

Two-tier tender offers, as executed, do not adversely affect shareholder

wealth either absolutely or in relation to any-or-all offers. Table 3 presents
average blended premiums for executed offers, cross-classified by type and
negotiation status at execution. When an any-or-all offer is executed, share-
holders receive a mean premium of 56.6% (median of 51.8%), compared with a
mean premium of 55.9% (median of 54.5%) when a two-tier offer is executed.
The difference in mean premiums for these two groups is not statistically
significant (t-statistic of 0.11). Shareholders do not fare as well when a partial
offer is executed. The mean premium of 22.8% (median of 21.3%) in partial
offers is significantly lower than the mean premium for any-or-all offers
(f-statistic of - 7.91).
A closer look at the distribution of blended premiums (table 4) further
reveals the similarity between the magnitude of any-or-all and two-tier blend-
ed premiums. For example, 64% of two-tier blended premiums are greater than
 R. Comment and CA. Jurreii. T&o-rter und negorured tender oglers 299

405 and 69% of any-or-all blended premiums exceed 40%. Only one offer was
executed with a negative blended premium.
Blended premiums for negotiated and unnegotiated tender offers are also
given in table 3. Blended premiums are significantly higher when the executed
offer is negotiated. with mean premiums of 54.5% for negotiated and 41.6% for
unnegotiated executed offers (t-statistic of 5.93). However, this is because of
the greater frequency of low-premium partial offers among unnegotiated
offers. Shareholders receive a mean premium of 56.5% when a negotiated
any-or-all offer is executed. compared with a mean premium of 57.1% when an
unnegotiated any-or-all offer is executed. Similarly. the mean premium of
56.8% in negotiated two-tier offers differs insignificantly from the mean
premium of 46.1% for the three unnegotiated two-tier offers (f-statistic of
0.47). Mean premiums differ little in negotiated and unnegotiated partial offers
as executed.
Table 3 also categorizes average blended premiums received in executed
offers by the type and negotiation status of their corresponding initial offers.
Blended premiums do not differ significantly according to whether the initial
offer is any-or-all, at 56.1%. or two-tier, at 53.2% (r-statistic of 0.47). Average
blended premiums are insignificantly lower when the initial offer is negotiated,
at 49.7%. than when it is not, at 55.3% (r-statistic of - 1.28). On average when
an offer is executed, target shareholders fare best when the contest is initiated
by an unnegotiated any-or-all offer (68.0%) and least well when the initial
offer is a negotiated partial (14.7%). It makes little difference, however.
whether the initial offer is an unnegotiated two-tier (49.6%) or a negotiated
at-iv-or-all (50.7%).
Ignoring partial offers, the above results can be generalized as saying that
the shareholder wealth effects of tender offers do not materially depend on
whether the offer is structured as any-or-all or two-tier, negotiated or unnego-
tiated, either initially or at execution. Partial offers do provide lower blended
premiums, but they differ from any-or-all and two-tier offers in that they
typically produce a less-than-majority holding for the bidder.

4.3. Front-end and back-end premiums

In our sample of executed offers, front-end loading is used in moderation.

and realized back-end premiums are positive on average so even non-tendering
shareholders generally gain from all types of tender offer. We calculate a

TAfter negotiating for five months, National Semiconductor agreed to acquire Data Terminal
Systems in a tender offer for up to 58% o f the shares at f8.00 per share, followed bq a cash merger
at S7.25 per share. The offer was oversubscribed. with 73% tendering. One month before the other
announcement. Data Terminal traded at 57.875 per share. giving a blended premium of - 2.9%
The market price one month prior may have increased because of an earlier announcement of
ongoing merger talks. This earlier announcement was not treated as the tirst offer for purposes of
calculating fu because no merger proposal was made.
300 R. Comntenr und CA. Jarrell. Tno-frer and negorrured rrrdrr offers

Table 5
Mean and distnbution of the percentage difference between front- and back-end pnce and average
front- and back-end premiums. in 210 cash tender oflers executed in the period 19X1-1984. by
type of offer executed (percentages in parentheses).

Type of offer executed

Percentage
Any-or-all Two-tier Partial Total
difference
between tiers 1%(0) N (%) !V (40) rv (8)

Less than 0% 7 (5) 4 (10) 4 (15) 15 (7)

0 to 204 132 (92) 14 (62) 11 (41) 167 (79)
10 to JOCC 4 (3) 7 (18) 7 (26) 18 (9)
40 to 604 1 (1) 4 (10) 3 (11) 8 (4)
More than 607 0 (0) 0 (0) 2 (7) 2 (1)
Total 144(100) 39 (loo) 27 (100) 210 (loo)
Mean 2.4% 13.8% 22.3% 7.1%

Front-end
mean premium 57.4% 63.28 35.4% 55.6%
Back-end
mean premium 54.0% 45.34, 14.5% 47.3%

A tender ofler is included if some shares are purchased for cash. An any-or-all offer accepts all
tendered shares. In a two-tier tender offer the bidder accepts a limited number of shares under
prorationing and intends to effect a subsequent merger. In a partial tender offer the bidder accepts
a limited number of shares under prorationing and does not intend to effect a subsequent merger.
The front-end percentage premium is the tender-offer bid (P,) divided by the market price
twenty trading days before the announcement of the initial offer (f,). minus one times 100. The
back-end percentage premium is the market price the day after expiration (P,) divided by the
prior market price. minus one times 100. The 3 difference between tier values is based on the ratio
of the bid price to the market price after expiration. or (( Pr/P,) - 1) x 100.

front-end premium as (P, - P,,)/P, and a back-end premium as (P, - P,)/P,.

As shown in table 5, the average front-end or bid premium is lowest in
executed partial offers (35.4%) and slightly lower for any-or-all (57.4%) than
for two-tier offers (63.2%). For every type of offer the average back-end
premium is both positive and lower than the corresponding mean front-end
premium. The average back-end premium is 54.0% in any-or-all offers. 45.3%
in two-tier offers. and 14.5% for partial offers.
Table 5 also reports the mean percentage difference between front- and
back-end prices (P, in relation to PE) for each type of offer. This value
measures the relative degree to which offers are front-end loaded. On average
in executed two-tier offers, the per-share value of the front end (PT) is 13.8%
greater than that of the back end ( PE). For partial offers on average, the value
of the front end is 22.3% higher than the back end. Front-end loading is least
pronounced in any-or-all offers, where the mean difference is only 2.4%. Table
5 also provides the frequency distribution of this relative difference between
tiers. In 96% of the any-or-all offers the bid price exceeds the back-end price
by less than 20%. This holds for 72% of two-tiers and for 56% of partials.
 R. Comment und G.._(. Jurrell. Tt+o-tierund negotroted tender offers 301

Overall, 7% of executed offers are actually back-end loaded, but recall that
offers need only be executed and not successful to be included in our
sample.x
We find the observed degree of front-end loading in two-tier offers surpris-
ingly small, especially since the back end of many two-tier offers comprises a
tax-free or tax-deferred exchange of securities in contrast to an immediately
taxable cash receipt in the front end. On an after-personal-tax basis, the
degree of front-end loading in two-tier and partial offers is likely to be even
smaller than our reported, nominal differences suggest.

4.4. Fractions tendered, purchased, and traded

Table 6 accounts for the disposition of the shares of tender-offer targets. It

shows the average percentage of outstanding shares (including shares reserved
for conversion) held by the bidder before the offer or purchased privately
(outside of the bid) from holders of large blocks and the percentage held under
lock-up options. It also shows the average percentage of shares that are
tendered into the offer as well as the percentage purchased. These tendering
data are obtained from the bidders final amendment to its 14D-1 statement.
As an indication of whether the targets shares are diffused as of the tendering
deadline, we also report the volume of open-market transactions over the offer
period as a percentage of outstanding shares. Averages are reported by type of
offer executed and, for each type, by whether the executed offer is negotiated.
Overall. an average of two-thirds (67.5%) of all shares are tendered and
slightly fewer are purchased (63.3%) giving bidders 74.7% of the target shares
after a typical executed tender offer. On average, 75.1% of the target shares are
tendered and purchased in any-or-all offers. When combined with average
prior holdings of 12.6%, this results in average bidder holdings of 87.7% after
any-or-all tender offers. In the typical executed two-tier, fewer shares are
tendered (61.8%). fewer are owned by the bidder before the offer (5.6%). and
fewer are purchased in the offer (47.1%). On average, bidders own a bare
majority (52.7%) after the first tier of two-tier offers, but in many cases this
fraction is sufficient to guarantee voting approval of a second-stage merger. In
contrast to any-or-all and two-tier offers, the typical partial offer results in a
less-than-majority holding for the bidder. On average, 35.5% are tendered into
executed partial offers and 23.9% are purchased, producing an average holding
after partial offers of only 37.7% of the targets shares.
For each type of offer, more shares are tendered, on average. into negotiated
offers than into unnegotiated offers. Specifically, 76.7% are tendered into
negotiated any-or-all offers compared with 63.7% for unnegotiated any-or-all

On average. these fifteen back-end-loaded offers drew 39% of the targets shares. compared
with 70% for the other executed offers. Four of the fifteen did draw more than half of the targets
shares. but these were any-or-all offers that were minimally back-end loaded.
302 R. Conmenr und G.A. Jurrell. Tito-nrr und negomred render offers

Table 6
Average percentage of total target-firm shares held by the bidder before the offer. tendered.
purchased. finally held by the bidder. and traded in the open market, for 210 cash tender offers
executed in the period 1981-1984, by type and negotiation status at expiration.

Type and Number Prior Lock-up Bidders

negotiation of bidder option Shares Shares final Shares
status of offer offers shares shares tendered purchased holdings traded

A ,I~Por-oli 144 12.6% 18.1% 75.1% 75.1% 87.7% 34.4%

Negotiated 126 12.5 20.6 76.7 76.7 89.2 35.6
Unnegotiated 18 13.5 0.0 63.7 63.1 11.2 25.4
r~lwrref 39 5.6 14.1 61.8 47.1 52.7 55.9
Negotiated 36 5.6 15.3 62.2 46.9 52.5 58.2
Unnegotiated 3 4.5 0.0 50.2 50.2 54.7 21.5
Purrrol 77 13.8 3.5 35.5 23.9 37.1 19.5
Negotiated 10 14.5 9.3 54.8 34.6 49.1 18.4
Unnegotiated 17 13.4 0.0 24.2 17.6 31.0 20.1
T0IUl 210 11.4% 15.5 67.5% 63.3% 74.7% 36.4%
Negotiated 172 11.2 18.9 12.5 68.0 79.2 39.4
Unnegotiated 38 12.8 0.0 44.0 42.0 54.8 23.2

A tender offer is included if some shares are purchased for cash. An any-or-all offer accepts all
tendered shares. In a two-tier tender offer the bidder accepts a limited number of shares under
prorationing and intends to effect a subsequent merger. In a partial tender offer the bidder accepts
a limited number of shares under prorationing and does not intend to effect a subsequent merger.
A negotiated tender offer is one made under a written agreement with the management of the
target tirm.
Percentages are of the target firms fully diluted shares outstanding. The bidders prior holdings
comprise shares held by the bidder before the bid and any shares privately purchased outside the
ofTer. Lock-up option shares are the target firms authorized but unissued shares, or mangers
personal shares that have been optioned to the bidder, and are in addition to prior holdings.
Shares traded are cumulative NYSE-. ASE-. or OTC-reported transactions between the initial
ofTer and the tendering deadline of the executed offer.

offers. Similarly, 62.2% are tendered into negotiated two-tier offers compared
with 50.2% for the three unnegotiated two-tier offers. Finally, 54.8% are
tendered into negotiated partials, compared with 24.2% into unnegotiated
partial offers.
These data on tendering contradict three important pieces of conventional
wisdom. First, a surprisingly large fraction of equity holders forego the
opportunity to participate in these tender offers. Without speculating about
the underlying motivations, it is notable that there remains untendered an
average of 12% of the outstanding shares even after the high-response any-or-all
offers. The second surprising result is that the tendering response is actually
less for the supposedly more coercive types of offers. In particular, the
response is greatest for any-or-all offers and less for two-tier and partial offers.
The tendering response runs directly counter to the coerciveness of the offer,
as measured by the difference between tiers (shown in table 5). The third
surprising result is that the tendering response for each type of offer is less for
unnegotiated offers than for those that are made after a written agreement has
been reached with the management of the target firm. This contradicts the
popular notion that unnegotiated offers are more coercive than negotiated
offers. Apparently, many stockholders heed target-managements advice in
determining whether to tender or hold.
Table 6 also presents data on the volume of trading between the an-
nouncement of the first offer of any kind and the expiration date or end of
prorationing of the executed cash tender offer. Shareholders are vulnerable to
the prisoners dilemma of a front-end-loaded offer only to the extent that the
shares are held diffusely by uncooperating shareholders. Although this may be
true at the announcement of an offer. it need not be the case at the tendering
date. Overall, more than a third (36.4%) of the outstanding shares are traded
during a typical executed tender offer. More shares trade in two-tier (52.7%)
than in any-or-all (34.4%) or partial offers (19.5%). More shares trade in
negotiated (39.4%) than in unnegotiated offers (23.2%). Although some shares
will trade more than once, these data are consistent with a substantial increase
in the concentration of ownership in target firms during tender offers.
Finally, table 6 also presents the average percentage of outstanding shares
optioned to the bidder in negotiated offers. These optioned shares are either
new shares or existing shares that the bidder has a right to acquire if they are
not tendered. The magnitude of optioned shares is an indication of how much
prior control can be delivered to favored bidders by incumbent target
management. Overall in negotiated offers, 18.9% of the outstanding shares are
held under a lock-up option by the bidder executing the offer. Such options
are somewhat larger in negotiated any-or-all offers, where bidders hold options
on an average of 20.6%, compared with 15.3 % in negotiated two-tier offers and
9.3% in negotiated partial offers.

4.5. Multiple bidder contests

We review all 210 successful tender offers executed during our time period
for visible evidence (public announcements) of competing tender offers or
merger proposals. Here we consider intermediate offers and merger proposals
in addition to initial and executed cash tender offers that comprise our sample.
If partial or two-tier offers involving prorata acceptance of shares enjoy a
fundamental tactical advantage over any-or-all tender offers or merger propo-
sals that do not, the advantage may be evident in multiple-bidder contests.
However, this survey fails to identify any evidence that unnegotiated two-tier
and partial offers dominate offers for any-or-all shares. With the two exceptions
described below, the offer with the highest (blended) value always dominates,
irrespective of whether it is formulated as an any-or-all, two-tier, or partial
offer.
304 R. Conmenr urld GA. Jurrell. Tlto-ner und negomted render offers

Of the 210 tender offers, 18 involved head-to-head contests between two-tier

or partial offers and any-or-all offers or merger proposals. Of these, five were
won by two-tier or partial offers. Three (Gulf Oil, HMW Industries, and
Interpace) were won with a higher blended premium than that available from
the competing any-or-all offer, so no inference can be made about tactical
advantages. In a fourth case (Conoco), the higher-valued any-or-all offer by
Mobil was enjoined by the U.S. Justice Department. In the fifth case (Enstar
Corp.), a two-tier offer did win out over a higher-valued any-or-all tender
offer, but the two-tier offer was negotiated with target management, whereas
the higher-valued any-or-all offer was unnegotiated and conditional on the
withdrawal of management support for the two-tier offer.

5. Conclusion

This study of the terms of 210 cash tender offers executed by non-parent
companies and individuals between 1981 and 1984 has several noteworthy
results. Any-or-all offers are much more frequent than partial and two-tier
offers, accounting for two-thirds of the total, and the relative incidence of
any-or-all offers grew during this period while the incidence of two-tier offers
declined. The incidence of negotiated tender offers is surprisingly high, at
four-fifths of the total, and increasing throughout the four-year period for both
initial offers and executed offers. Interestingly, two-tier offers are more
frequently negotiated than any-or-all offers.
The high frequency of negotiated tender offers has important implications
for models of the tender offer process that assume target shareholders are
atomistic and non-colluding, as well as for regulations and defensive corporate
charter provisions designed to protect individual investors from front-end
loading. The bargaining power of target management that is apparent in these
results reduces any tactical advantage bidders may have as a result of diffuse,
atomistic ownership of the target firms common stock. As an empirical rule,
the agency of target management provides a means of ensuring cooperative
tendering behavior by shareholders. One implication is that the
manager-shareholder agency relationship is the proper focus of policy-maker
and shareholder concern over coercive bidder tactics.
We present detailed comparisons of percentage premiums in any-or-all
offers with two-tier and partial offers. The average premium for the 144
any-or-all offers, at 56.6% above the pre-offer market price, does not differ
significantly from the average yield on the 39 two-tier offers of 55.9%, whereas
the 27 partial offers yield 22.8%. Over two-thirds of any-or-all premiums and
two-tier premiums exceed 40%. Two-tier tender offers are approximately as
beneficial to target-shareholder wealth as any-or-all tender offers and more
beneficial than partial offers, which have no back-end purchases. The average
premiums paid provide no evidence that target shareholders are absolutely or
relatively disadvantaged by the two-tier form of tender offer.
 R. Comment und GA. Jurrell, Two-tter and negottated render offers 305

Appendix

Table 7
Same of target. name of bidder, type of offer executed and whether negotiated before expiration.
announcement date of the initial offer and (prorationing) expiration date, for 210 cash tender
offers executed in the period 1981-1984 for NYSE. ASE or OTC firms by non-parent bidders.

Adams Drug Co. Inc.: a negotiated any-or-all by Pantry Pride. Inc., 841002-841107
Aegis Corp.: a negotiated any-or-all by Minstar Inc., 840406-840514
Amalgamated Sugar Co.: a negotiated any-or-all by National City Lines Inc.. 820903-821110
Amerace Corp.: a negotiated any-or-all by Raceco, 840410-840924
American Motor Inns Inc.: a negotiated any-or-all by Prime Motor Inns Inc.. 840801-840907
American Sterilizer Co.; a negotiated any-or-all by Amsco Acq. Co., 840919-841210
American Welding & Mfg. Co.: a negotiated any-or-all by Hoover Universal Inc.. 820727-820826
Anta Corp.: an unnegotiated any-or-all by Manor Care Inc.. 831121-840105
Applied Solar Energy Corp.; a negotiated partial by Stauffer Chem. Co.. 841121-841219
Assoc. Coca-Cola Bottling Co.; a negotiated any-or-all by Coca Cola Co., 820510-820716
Atlantic Oil Corp.: an unnegotiated any-or-all by Stephens Inc.. 830114-8320218
Avco Corp.: a negotiated any-or-all by Textron Inc., 841127-850130
Bathe Group Inc.: a negotiated any-or-all by Prudential Insurance Co. of America, 810319-810416
Baker Brothers Inc.: a negotiated any-or-all by Roth Corp., 820420-820517
Bangor Punta Corp.: a negotiated any-or-all by Lear Siegler Inc.. 831205-840227
Bassett-Walker Inc.: a negotiated any-or-all by VF Corp., 841001-841031
Beck/Arnley Corp.: a negotiated any-or-all by Guest. Keen & Nettlefolds. PLC. 840713-840816
Bekins Co.: a negotiated any-or-all by Minstar Inc., 830412-830624
Belco Petroleum Corp.: a negotiated two-tier by Intemorth Inc.. 830222-830524
Belknap Inc.: a negotiated any-or-all by David A. Jones. 840125-840328
Bendix Corp.: an unnegotiated two-tier by iMartin Marietta Corp.. 820830-821001
Breeze Corporations Inc.: a negotiated two-tier by TransTechnoIogy Corp.. 820526-820730
Brunswick Corp.: a negotiated partial by American Home Products Corp.. 820125-820225
ButTalo Forge Co.: an unnegotiated any-or-all by Ampco-Pittsburgh Corp.. 810105-810320
Bunker Ramo Corp.: a negotiated two-tier by Allied Corp.. 810511-810604
Burgess Industries Inc.: an unnegotiated any-or-all by Valley Inds. Inc.. 820305-820419
Burns Intl. Sec. Svcs. Inc.; a negotiated any-or-all by Borg-Warner Corp., 820427-820525
CFS-Continental Inc.: a negotiated any-or-all by A.E. Staley Mfg. Co., 841001-841119
Camelot Industries Corp.: a negotiated any-or-all by Buckbee-Mears Co.. 820315-820604
Cannon Mills Co.: an unnegotiated any-or-all by Pacific Holding Corp., 820105-820305
Cardif Equities (TFI Cos.): an unnegotiated any-or-all by Leucadia National Corp., 820224-820326
Caressa Group Inc.: a negotiated any-or-ail by AEA Investors Inc., 841015-841116
Carnation Co.: a negotiated any-or-all by Nestle S.A., 840904-850121
Carpenter Paper Co.: a negotiated any-or-all by Alto Standard Corp., 810618-810831
Cedar Point Inc.: a negotiated partial by S. Pearson & Son Ltd.. 810226-810401
Cenco Inc.: a negotiated any-or-all by Manor Care Inc., 810903-811030
Chem-Nuclear Systems Inc.: a negotiated two-tier by Waste Management Inc., 820628-820803
Chesapeake Life Insurance Co.: a negotiated partial by Lifeshares of Nebraska Inc..
810717-810831
Chieftain Dev. Co. Ltd.: an unnegotiated partial by Alberta Energv Co. Ltd.. 820617-820720
Childrens World Inc.: a negotiated any-or-all by Grand Metropoiitan Ltd.. 830531-830708
Cities Service Co.; a negotiated two-tier bv Occidental Petroleum Corn.. 820528-820904
Clark Oil & Refng. Co&: a negotiated any-or-all by Apex Oil Co.. 8iO622-810916
Clausing Corp.: a negotiated any-or-all by Rexnord Inc.. 840514-840620
Coldwell. Banker & Co.: a negotiated two-tier by Sears, Roebuck & Co., 811005-811106
Compugraphic Corp.: a negotiated any-or-all by Bayer AG. 811022-820129
Connecticut Gen. ,Litg. & Rlty.: an unnegotiated any-or-all by Prudential Insurance Co. of
America. 810616-810901
306 R. Commenr 1.4 GA. Jarreil. Ttio-rler und negnrrared lender ofers

Conoco Inc.; an unnegotiated partial by Dome Petroleum Ltd.. 810506-810526

Conoco Inc.; a negotiated two-tier by Du Pont (E.I.) De Nemours & Co., 810706-810817
Conoco Inc.; an unnegotiated partial by Seagram Co. Ltd., 810625-810809
Contech Inc.; a negotiated any-or-all by Rexnord Inc., 820331-820513
Continental Airlines Corp.; an unnegotiated two-tier by Texas Air Corp.. 810209-810312
Cowed Corp.: an unnegotiated any-or-all by Leucadia National Corp.. 841101-850118
Core Laboratories Inc.; a negotiated any-or-all by Litton Industries Inc., 840104-840201
Ctiton Corp.: a negotiated any-or-all by Dyson-Kissner-Moran Corp.. 820824-821008
DSI Corp.: a negotiated any-or-all by Anacomp Inc., 820412-820610
Dan River Inc.: an unnegottated partial by Ichan Capital Corp., 820915-830120
Danly Machine Corp.; a negotiated any-or-all by Ogden Corp.. 810615-810724
Data Terminal Systems Inc.; a negotiated two-tier by National Semiconductor Inc.. 830117-830307
Datatab Inc.: an unnegotiated any-or-all by Data Probe Inc., 830621-830808
Dean Witter Reynolds Org. Inc.: a negotiated two-tier by Sears, Roebuck & Co., 811009-811110
Delhi Intl. Oil Corp.: a negotiated any-or-all by CSR Ltd.. 810924-811104
Donaldson, Lufkin~& Jenrette: a negotiated any-or-all by EquiTable Life Ass. Sot.. 841105-850109
Dorchester Gas Corp.; a negotiated any-or-all by Damson Oil Corp.. 840125-840413
El Paso Co.: a negotiated two-tier by Burlington Northern Inc., 821221-830207
Electra-Protective Corp. Amer.: a negotiated any-or-all by Hawley Group Ltd., 810803-820104
Electronic Modules Corn.; a negotiated two-tier bv Rexnord Inc.. 841210-850109
Energy Reserves Group inc.; a negotiated any-or-ail by Broken Hill Prop. Co. Ltd., 841106-850104
Enstar Corp.: a negotiated two-tier by Allied Corp.. 840328-840626
EquiTable Life Mtg. Rlty. Inv.; a negotiated any-or-all bv EquiTable Life Ass. Sot.. 820701-821119
Erikson Corp.: a negotiated any-or-all by Lull Engineering Corp.. 810427-810526
Esmark Inc.: a negotiated any-or-all by Beatrice Foods Co., 840503-840620
Faberge Inc.: a negotiated two-tier by McGregor Inc.. 840103-840217
Fabri-Tek Inc.: a negotiated any-or-all by CTS Corp.. 820112-820225
Fairfield-Noble Corp.: a negotiated any-or-all by Lloyd Williams Inc.. 810901-810928
Financial Gen. Bar&h. Inc.; a negotiated any-or-all by Credit & Comm. Amer. N.V..
820303-820419
First Marine Banks Inc.; a negotiated any-or-ah by Bamett Banks of Fla. Inc.. 810622-820331
First Maryland Bancorp; a negotiated partial by Allied Irish Banks Ltd., 830307-831221
Fisher Scientific Co.: a negotiated two-tier bv Allied Corp.. 810428-810828
Flickinger (S.M.) Co. Inc.la negotiated any-or-all by ScXvner Inc., 840319-840613
Florida Coast Banks Inc.; a negotiated any-or-all by Bamett Banks of Fla. Inc., 830919-840426
Florida Commercial Banks Inc.; an unnegotiated partial by Hugh Culverhouse. 840827-841116
Flower Time Inc.; a negotiated any-or-all by- General Host Corp.. 840130-840305
Formigli Corp.: a negotiated any-or-all by High Industries Inc.. 820913-821015
Franks Nursery & Crafts Inc.: a negotiated anv-or-all by General Host Corp.. 830128-830307
GF Business Equipment Inc.: a negotiated partial by Anderson Equity Invs.. 820125-820318
Garfinkel Brooks Bras. Inc.: a negotiated any-or-al-by Allied Stores Corp., 810814-810915
Gas Service Co.: a negotiated anv-or-all bv Kansas Power & Light Co., 830613-831014
General Portland Inc.1 a negotiaied any-or-all by Canada Cem&t Lafarge Ltd., 810623-811123
General Steel Inds. Inc.; a negotiated partial by Walco National Corp.. 811102-811222
Getty Oil Co.; a negotiated any-or-all by Texaco Inc.. 831228-840213
Giddings & Lewis Inc.: a negotiated any-or-ah by Amca Intl. Corp.. 820706-820802
Ginos Inc.: a negotiated any-or-all by Marriott Corp.. 810929-820204
Grand Central Inc.; a negotiated any-or-all by- FM1 Associates, 840326-840511
Graniteville Co.: a negotiated any-or-all by Southeastern Pub. SK. Co.. 830426-830725
Gray Drug Stores Inc.: a negotiated any-or-all by Sherwin-Williams Co., 810805-811005
Gulf Corn.: a negotiated anv-or-all by Chevron Corp.. 840130-840427
HMW Industries-Inc.: a negotiated &o-tier by Clabir Corp., 830816-831024
Hamilton Oil Corn.: an unnegotiated martial bv AB Volvo, 840911-841012
Harsco Corp.: an*unnegotiateh partial*by Crane Co.. 810126-810313
Heublein Inc.: a negotiated two-tier by Reynolds (R.J.) Ind. Inc., 820729-820809
Higbee Co.: a negotiated any-or-all by Industrial Equity (Pac.) Ltd., 840910-841019
 R. Conmenr und GA. Jurrell, Two-rrer und negorured render offers 307

Hobart Corp.: a negotiated any-or-all by Dart & Kraft Inc.. 801215-810318

Impel1 Corp.; a negotiated any-or-all by Combustion Engineering Inc., 840312-840425
Instrumentation Lab. Inc.: a negotiated two-tier by Allied Corp., 830103-830322
Intermountain Gas Ind. Inc.; a negotiated any-or-all by 151G Holdings Inc.. 840813-841204
Interpace Corp.; a negotiated two-tier by Cleiepak Corp.. 830419-830615
Itek Coin.: a negotiated anv-or-all bv Litton Industries Inc.. 830114-830218
James (Fred S.) % Co.; a negotiatedany-or-all by Transametica Corp.. 821101-821217
Jamesbury Corp.; a negotiated any-or-all by Combustion Engineering Inc.. 840312-840424
Jetero Corp.; a negotiated any-or-all by Beeler-Sanders Inc.. 820426-820614
Jewel Companies Inc.: a negotiated two-tier by ,American Stores Corp., 840501-840628
Jonathan Logan Inc.; a negotiated two-tier by United iMerchants & Mfg. Inc.. 840320-840822
Jumper Petroleum Corp.: & unnegotiated any-or-all by Damson Oil Corp.. 821101-821217
Kent-Moore Corn.; a neeotiated two-tier bv Sealed Power Coin.. 811107-811222
Lane Bryant Inc.: a negltiated any-or-all by Limited Stores Inc., 820407-820527
Leader Healthcare Org. Inc.; a negotiated any-or-all by Cenco Inc.. 810521-810730
Lenox Inc.: a negotiated any-or-all by Brown-Forman Ltd.. 830608-830721
Life Investors Inc.: an unnegotiated partial by AGO Intl.. 810910-811116
Lightolier Inc.: a negotiated any-or-all by Baimco Corp.. 810623-810904
Ludlow Corp.: a negotiated any-or-all by Tyco Laboratories Inc., 810701-811006
Magma Power Co.: a negotiated any-or-all by Natomas Co.. 810327-810505
Mallinckrodt. Inc.; a negotiated two-tier by Avon Products Inc.. 811215-811228
Malone & Hyde Inc.; a negotiated any-or-all by Pittco Acquisition Corp., 840608-840712
Marathon Oil Co.; a negotiated two-tier by Umted States Steel Corp., 811030-821205
Marshall Field & Co.: a negotiated any-or-all by B.A.T. Industries PLC. 820202-820421
Martin Marietta Corp.: an unnegotiated two-tier by Bendix Corp., 820825-820923
iMasonite Corp.: a negotiated any-or-all by United States Gypsum Co., 840223-840426
Means Services Inc.; a negotiated any-or-all by ARA Services Inc.. 820122-820401
Medford Corp.: a negotiated any-or-all by Amalgamated Sugar Co., 840710-841005
Mesa Rovaltv Trust: an unnegotiated anv-or-all bv Mesa Petroleum Co.. 840515-840628
Michigan Sugar Co.: a negotiited any-or-all by Savannah Foods & Inds. Inc.. 840409-840507
Midlands Energy Co.: a negotiated two-tier by Freeport-Mc,MoRan Inc., 840913-841015
Miller Bros. Inds. Inc.: a negotiated any-or-all by Miller Bros. Holdings Inc.. 840407-840608
Miller-Wohl Co. Inc.: a negotiated any-or-all by Petrie Stores Corp., 840501-840626
Milton Bradlev Co.: a negotiated two-tier by Hasbro Inds. Inc., 840425-840606
Mission Ins. Gp. Inc.; an-unnegotiated partial by American Fin]. Co., 840216-840330
Mississippi Valley Gas Co.: a negotiated any-or-all by Yazoo Inv. Corp.. 840327-840510
Narco Scientific Inc.: a negotiated two-tier by Healthdyne Inc., 821001-821109
National Mine Service Co.: a negotiated partial by Anderson Strathclyde PLC, 821214-830131
National Mobil Concrete Corn.: a neeotiated am-or-all bv Chaucer Alliance Inc.. 821108-821213
National Savings Corp.: a negotiatedany-or-all by Western Preferred Corp.. 820224-820416
Northwest Energy Co.; an unnegotiated any-or-all by Williams Cos., 830808-831014
Northwestern Mut. Life Mtg.: a negotiated any-or-all by Northwestern Mut. Life Ins.,
820923-821115
Norton Simon Inc.; a negotiated any-or-all by Esmark Inc., 830606-830725
Olympia Brewing Co.: a negotiated two-tier by Pabst Brewing Co., 820601-820709
Opelika Mfg. Corp.: an unnegotiated partial by Technical Equip. Leasing Corp.. 810415-810515
Pabst Brewing Co.; a negotiated two-tier by G. Heileman Brewing Co. Inc.. 820329-821222
Pabst Brewing Co.; a negotiated any-or-all by S & P Co. Inc.. 841112-850129
Page Airways Inc.: a negotiated any-or-all by Guthrie Corp. Ltd.. 810817-811016
Pargas Inc.: a negotiated any-or-ail by Reliance Group Hldgs. Inc.. 830111-831123
Parsons Corp.: a negotiated any-or-all by Parsons E.S.O.P.. 840913-841026
PayN Save Corp.: a negotiated any-or-all by The Trump Group Ltd.. 840904-841015
Peoples Drug Stores Inc.: a negotiated any-or-all by Imasco Ltd.. 840228-840410
Petrolane Inc.: a negotiated any-or-all by Texas Eastern Corp.. 840621-840810
Phone-Mate Inc.: a negotiated partial by Asahi Corp.. 840802-840926
308 R. Conment und G.A. Jarrell. Trro-rler
undnegottuted tender offers

Pier 1 Imports Inc.: an unnegotiated partial by Fuqua Inds. Inc., 811121-811230

Pogo Producing Co.: an unnegotiated partial by Sedco Inc.. 830421-830607
Pranie Producing Co.: a negotiated any-or-ah by- Placer Dev. Ltd.. 841107-841219
Prentice-Hall Inc.: a negotiated any-or-all by Gulf + Western Inds. Inc., 841105-841210
Property Invs. Colorado: an unnegotiated partial by DBP Partners. 810917-811118
Puritan Fashion Corp.; a negotiated any-or-all by Calvin Klein, 831114-831228
Qonaar Corp.: a negotiated any-or-all by Kroehler Mfg. Co.. 810728-811016
RED,M Inds. Inc.: a negotiated any-or-all by Pullman Inc.. 840814-841012
REIT of America: an unnegotiated partial by San Francisco R.E.I.T.. 821028-830331
RSR Corp.: a negotiated any-or-all by RSR Holding Corp., 840229-840426
Rampac; -an unnegotiated any-or-all by Pan-American Pptvs Inc., 830930-840130
Rand Caoital Corp.: an unneeotiated anv-or-all bv Crossbill Inc.. 820212-820314
Richardson Co.; a negotiated-any-or-all by WitcoChemical Corp., 811030-820107
Rio Grand Inds. Inc.; a negotiated any-or-all by The Anschutz Corp., 841001-841108
Roper Inds. Inc.: a negotiated any-or-all by Dexter Corp., 811219-820201
SCA Services Inc.: a negotiated any-or-all bv Waste iMgmt. Inc., 840611-840921
SSP Inds.: a negotiated&y-or-all by TramTechnology-Corp., 830307-830617
St. Joe Minerals Corn.: a negotiated two-tier bv Fluor Corn.. 810311-810415
St. Regis Corp.; a negotiatedtwo-tier by Champion Intl. Corp., 840717-840828
Sav-A-Stop Inc.: a negotiated any-or-all by Consotidated Foods Corp., 820106-820226
Schlitz (Jos.) Brewing Co.: a negotiated two-tier by Stroh Brewing Co., 820329-820428
Schrader (Abe) Corp.: a negotiated any-or-all by Interco Inc.. 840109-840312
Sonoma Vinevards; an unnegotiated any-or-all bv Renfield Corp., 841026-841219
Speed-O-Print Bus. Mach. Corp.: a negotiated partial by Peter- Nisselson et al.. 841023-841126
Sta-Rite Industries Inc.: a negotiated two-tier bv Wicor Inc.. 820521-820608
Stecher-Traung-Schmidt Corp.; a negotiated a&or-all by International Paper Co.. 830630-840812
Stokely-Van Camp Inc.; a negotiated any-or-all by Quaker Oats Co., 830621-830812
Strother Drug Co.: a negotiated any-or-all by Alto Standard Corp., 810521-811030
Suburban Propane Gas Corp.; a negotiated any-or-all by Nat. Dists. & Chem. Corp..
821026-830131
Sunbeam Corp.: a negotiated two-tier by Allegheny International Inc., 810921-811024
Super Dollar Stores Inc.: a negotiated any-or-all by Variety Wholesalers, 810220-810618
Supron Energy Corp.: a negotiated two-tier by Alhed Corp., 820114-820220
Tano Corp.: a negotiated any-or-all by Rexnord Inc.. 840518-840628
Technicolor Inc.; a negotiated any-or-all by .MacAndrews & Forbes Gp. Inc.. 821029-821203
Telerent Leasing Corp.: a negotiated any-or-all by Aviation Group Inc.. 831207-840114
TerTdale Realty Trust: an unnegotiated partial by BCG Associates, 801231-810220
Texas Gas Resources Corp.: a negotiated any-or-all by CSX Corp., 830606-830806
Texasgulf Inc.: an unnegotiated any-or-all by Societe Nat. Elf Aquitane. 810626-810727
Thiokol Corp.: a negotiated two-tier by Morton Thiokol Inc.. 820719-820728
Torin Corp.: a negotiated any-or-all by Clevepak Corp.. 820607-820706
Treadway Cos. Inc.: an unnegotiated any-or-all by Fair Lanes Inc.. 810617-810819
T&American Corp.: a negotiated any-or-all by Scottish & York Holdings Ltd.. 810406-810514
Tymshare Inc.: a negotiated any-or-all by McDonnell Douglas Corp., 840227-840406
USP Real Estate Inv. Tr.: an unnegotiated partial by Life Investors, 811109-820104
USP Real Estate Inv. Tr.; an unnegotiated partial by Minneapolis Investors, 811109-811224
Union Electric Steel Corp.; a negotiated any-or-all by Ampco-Pittsburg Corp.. 840608-840720
Union Gas Svstems Inc.: a negotiated anv-or-all bv Z.G. Transitory Corp., 840426-840731
United Realty Investors Inc.: a negotiated any-or-ah by Butterfield S&L Assoc.. 830725-830830
United States Inds. Inc.; a negotiated anv-or-all bv Hanson Trust PLC, 840227-840523
United States Sugar Corp.: a negotiated any-or-all by E.S.O.P.. 830915-831018
Volume Merchandise Inc.: a negotiated any-or-all by VM Acquisition Corp., 840611-840802
Vulcan Inc.: a negotiated any-or-all by Ampco-Pittsburg Corp., 840229-840406
Wallace-Murray Corp.: a negotiated two-tier by Household International Inc., 810204-810316
Walter Realty Invs. Inc.; an unnegotiated any-or-all by Seville Corp., 810825-810923
Restern Gear Corp.: a negotiated any-or-all by Bucyrus-Erie Co., 810723-811129
 R. Conment und GA. Jurrell, Two-mr und negormedrender offers 309

This study also investigates the relative differences between front- and
back-end prices for the three types of offers. Empirically, front-end loading is
used in moderation. Nearly three-fourths of the two-tier offers have less than a
20% difference between front- and back-end value, compared with almost all
of the any-or-all offers and more than half of the partial offers. By this
measure. two-tier offers are more coercive than any-or-all offers but less
coercive than partial offers. In the context of the extensive public policy
debate over the coercive potential of two-tier offers, however, we find the
actual differences in value between tiers to be surprisingly small in most
two-tier offers.
A higher proportion of outstanding shares is tendered into any-or-all offers
(75.1%) than into two-tier offers (61.8%) or into partial offers (35.5%). Since
the holders of relatively more target shares resist tendering into two-tier and
partial tender offers than any-or-all tender offers, these results are inconsistent
with claims that shareholders are stampeded into tendering into two-tier and
partial offers because of the greater coerciveness of these forms. In addition,
the greater fraction of shares tendered into negotiated tender offers compared
with unnegotiated tender offers confirms that target managements can and do
influence the tendering decisions of their shareholders. Finally, a substantial
fraction of the shares of target firms (36.4%) is traded in the open market
during tender offers, with 55.9% traded during two-tier offers, so one can not
safely assume that the shares of target firms are still diffusely held as of the
tendering date, if they were before the offer.
Target-firm stockholders probably would not benefit from regulatory
changes that would encourage the use of partial tender offers instead of
two-tier offers. The back-end premium in two-tier offers is on average three
times as large as the market price or implicit back-end value of partial offers.
Also, these results suggest it is problematic whether target shareholders would
benefit from further regulatory inducements to use negotiated rather than
unnegotiated offers, or any-or-all instead of two-tier offers. If potential
premiums are close to the premiums realized by target stockholders in the
various types of offers, such a switch will not change the returns to target
shareholders appreciably, and might leave them worse off, in any case, if the
inducement deters many takeovers. The losses to target shareholders from
such foregone transactions, even if they are few, can outweigh the scant
benefits indicated in this sample.

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