MARKUP PRICING IN MERGERS AND ACQUISITIONS

This paper studies the relation between the premiums in takeover bids involving exchange-listed target firms from 1975-91 and the pre-announ cement stock price runups. The evidence shows that the pre-bid runup a nd the post-announcement increase in the target's stock price (the 'ma rkup') are generally uncorrelated. With little substitution between th e runup and the markup, the runup is an added cost to the bidder. This finding has important implications for assessing the costs of insider trading. It also raises interesting questions about the role of infor mation from public capital markets in private takeover negotiations.