Acquirers’ political connections and bargaining outcomes in corporate takeover negotiations: Evidence from antitrust reviews

We examine how acquirers’ political connections affect takeover bargaining that involves significant regulatory uncertainties, when the target’s options of putting itself to another bidder are restricted. Opposite to prior takeover theories, we show that a politically connected acquirer pays a lower (rather than higher) takeover premium to and shares a smaller portion of the takeover gains with the target in the context of antitrust reviews, consistent with a bargaining benefit for the connected acquirer. Corroborating this bargaining argument, we find that the results are more pronounced in situations where: (1) the antitrust concerns are more severe; (2) the targets have fewer outside options other than the connected acquirers; and (3) the acquirers’ political connections are more valuable. Our results highlight the value of political connections to shareholders in takeovers, affecting not only the likelihood of completion but also the bargaining outcomes of the deal under the shadow of costly regulation.