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Women Affect Shareholder Value in Mergers and Acquisitions


For each ten percent female representation on both the bidder and target boards, bid premiums are reduced by approximately 12%. Sound like a win for bidders? Not so fast...

The push toward corporate board diversification and independence has been strong as supporting research demonstrates that a variety of backgrounds strengthens the decisions that this body makes. Still, there has been little attention to specific changes in the makeup of boards of publicly traded companies, for example increasing the percentage of women on their boards.

Maurice Levi, Kai Li and Feng Zhang from the Sauder School of Business at the University of British Columbia in Vancouver, BC, have been breaking new ground in this area. Their paper, “Mergers and Acquisitions: The Role of Gender,” indicates that the sex of board members strongly influences what the bid premium will be for a potential takeover company, also called the target. This is true only if they have been independent appointees and not from within the company. This makes sense as someone from within the company is more likely to foster the “party line” and not act autonomously,

Lower bids, no hostile takeovers

For each ten percent female representation on both the bidder and target board, the bid premium was reduced by approximately 12%. This is beneficial for the bidder company and their shareholders as they are less likely to pay too much for the acquisition.

It is negative for the target company and their stock investors as they are not going to receive as high a premium per share price as they otherwise might have. The good thing altogether is that hostile tender offers are avoided because negotiations center on more realistic company share prices.

A tender offer is an approach used by an acquiring company when an agreement is not reached between itself and the target company. Then, the bidding company makes a “tender offer” or a takeover proposal to shareholders of the target company. They frequently offer above the current share price.

This scenario can get nasty and may not benefit the bidder company because of the high price they have to pay, or the target company because of the friction it causes within.

This information was cited from the October, 2009 version of Levi and colleagues' paper, which was provided to me in an e-mail dated March 22, 2010. In this same communication, Dr. Levi explains what the gender aspect of their paper reveals to the authors: “… the result is consistent with is greater risk aversion of women. Risk averse people place less value on a stream of earnings: they use a high discount rate.”

This research has implications for company CEOs, but individual investors can take away something too. It is the mix of caution and boldness that facilitates the ability to make money in the stock market. In general, women might excel at one (caution) and men at the other (boldness). But, it is the combination of the two, measured risk taking, which maximizes the reward.

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