Stealth Acquisitions and Product Market Competition

By John D. Kepler (Stanford), Vic Naiker (University of Melbourne) & Christopher R. Stewart (University of Chicago)

This study examines the extent to which firms structure their merger and acquisition (M&A) deals to avoid scrutiny from antitrust regulators in order to better understand how certain corporate deals alter firms’ competitive landscapes. We find that an abnormal number of M&A deals are structured to narrowly avoid antitrust scrutiny, and that these “stealth acquisitions” are driven by acquisitions of private targets that entail contractual terms with lower deal premiums that facilitate avoidance of antitrust review, payoff functions that allow for more discretion in assigning deal values, and additional compensation for managers of target firms (e.g., via post-acquisition employment). Finally, we find several patterns of evidence consistent with stealth acquisitions reducing product market competition, as the equity values of acquiring firms’ competitors increase following stealth acquisitions, and detailed micro-level product pricing data reveals increased product prices following a stealth acquisition by rivals. Our results suggest that firms can successfully manipulate M&A deals to avoid antitrust scrutiny, thereby leading to anticompetitive behavior.

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