Bank Mergers and Acquisitions

As finance literature suggests, an option is valuable. The major finding of this study is that lockup options and collar offers in bank merger transactions are important terms in determining the bid premiums offered to the target, after controlling for the salient financial and deal-specific variables. The findings are somewhat consistent with Burch (2001) and Fuller (2003). This paper also finds that synergy is positively related to merger premiums, but the effect is significant only in intrastate mergers when large banks takeover relatively smaller banks. The structure of the deal (pooling vs. purchase) and the credit quality of the target bank s portfolio seems to affect the target s value in bank takeover markets.