Announcements in the Conoco Takeover

On June 21 1981, Conoco announced that it rejected a bid from an unidentified firm to purchase about
25 percent of Conoco for $70 a share. The rejection of the takeover bi dis associated with an abnormal
return of 6,55 percent for Conoco. This initial value in the value of Conoco could be attributed to either
the expectations of a forthcoming takeover bid or the revaluation of Conoco, based on the information
that another firm valued Conoco at $70 a share.

On June 23 1981, the unidentified bidder was identified as Seagram, and Seagram announced its
intention to purchase shares of Conoco. Its rejected offer included a standstill agreement , in which
Seagram had agreed not to seek control of Conoco. This announcement led to a abnormal return of
3,85 percent for Conoco and a abnormal return of 1.71 percent for Seagram.

On June 25 1981, Seagram announced its first tender offer of $73 a share for 41 percent of Conoco. T
led to an abnormal return of 5,37 percent for Conoco. The correct measure of the abnormal return is
the cumulative performance from all three announcements, which is 22.2 percent. This announcement
led to an abnormal return of 7,65 percent for Seagram, this is the largest abnormal return that Seagram
stock realized during June through August of 1981. It suggests that the market viewed Seagrams
tender offer as a value increasing investment. Seagrams cumulative abnormal performance was 11,42
percent. The tender offer by Seagram was opposed by Conoco and Conoco sought out other takeover
bids.

On July 6 1981, a takeover of Conoco by Du Pont was announced. This offer involved the payment of
$87,50 a share for 40 percent of Conocos stock and an exchange of 1.6 shares of Du Pont for each of
the remaining Conoco shares. The abnormal return of Conoco was 11.87 percent, it is the largest
abnormal return during the period. The abnormal return for Du Pond was negative, 8.05 percent. The
market did not expect the mergered firm to be more valuable than the separate firms. Besides, note
that Seagram,s stockholders incurred an abnormal loss of -3.88 percent, which is consistent with the
view that Seagrams initial offer was a good investment for them.

On July 13 1981, Seagram responded to the Du Pont offer by increasing its offer to $85 a share for 51
percent of Conoco. This offer involved the purchase of more shares at a higher offer price. Conoco has
rejected this offer and realized an abnormal return of 9.14 percent. Seagram and Du Pont realized
small negative abnormal returns of -0.29 percent and -0.20 percent. One interpretation of the small
negative abnormal return is that the market anticipated subsequent bids Du Pont for Conoco.

On July 15 1981, Du Pont increased the cash portion of its bid for Conoco to $95 a share for 40 percent
of Conoco and also increased the exchange ratio for the remaining shares of Conoco to 1.7 a share of
Du Pont. For Conoco, there was an abnormal return of 1.46 percent. Each of the bidders incurred
abnormal losses. These loses are not significantly different from zero. This indicates that the market
anticipated a decline in the profitability of the takeover for the bidders.

On July 17 1981, Mobil entered the bidding for Conoco with an offer of $90 a share for 50 percent of
Conoco and an exchange of $90 worth of Mobil securities upon completion of a merger with Conoco.

On July 23 1981, Seagram responded to Mobils offer by raising its bid for 51 percent of Conoco to $92.
This led to an abnormal return of 3,93 percent for Conoco. Seagram incurred an abnormal loss of -2,34
percent.

On July 27 1981, Du Pont and Mobil revised their offers, the pattern of negative abnormal returns for
biddings firms was repeated. On August 3 1981, Mobil revised its offer by increasing the cash portion
of its bid to $115. Seagram realized a positive abnormal return of 7,47 percent. This is explained by
three other announcements. First, Seagram announced that it had received tenders for 15.5 million
shares of Conoco and that they would begin purchasing them at $92 a share. Second, the Justice
Department said that its only antitrust concerns in a Du Pont-Conoco merger involved a joint venture
between Monsanto Company. Du Pont announced plans to file a consent decree which would
eliminate this problem. Third, the Justice Department requested more information from Mobil.

On August 4 1981, Du Pont raised the cash portion of its offer to $98 a share and the Justice
Department announced antitrust clearance for a Du Pont-Conoco merger. The three bidders incurred
abnormal losses.

The story ended when Du Pont announced that it had received tenders for 55% of Conocos common
stock on August 5. It is important to distinguish those Conoco shares tendered to Du Pont from those
that were not because since withdrawal deadline the shares could not have been sold by the
shareholders, in fact the Conocos price per share was not the same before that date. In fact, the
abnormal return for Conoco based on average price, was -0.43%, whereas the one based on the market
price after the withdrawal deadline was -2.09%. The abnormal return for Du Pont on August 5 was
2.24% and for Conoco it was -2.09%. It was the first time that Conoco realized abnormal returns and
losses. We can explain that loss because of a market anticipation of additional bids from Du Pont. In
fact the announced of Du Pont victory meant that the bidding was ended and that no more higher bids
could be made, so Conocos stock price went down. The abnormal return of -1.89% could be explained
by Du Ponts success which meant that Seagram lost an important investment and that it will impact
shareholders wealth. Otherwise that particular case is still unclear and can give place to different
interpretations.

Summary of Abnormal Returns

The most dramatic effect of the takeover was the cumulative abnormal returns of 71.24% on the value
of Conocos common stock from June 17 to August 5. This substantial abnormal return means that the
equity of Conoco rose by over $3 billion.

Du Pont realized cumulative abnormal returns of -9.90%. According to Dodds study, this abnormal
return, which represents a decline of $789 million of Du Ponts equity value is such an important one.
It means that the acquisition of Conoco was a negative net present value investment. And it was the
same for each successive bids of Du Post.

Concerning the two takeover attempts of Seagram and Mobil, the cumulative abnormal returns were
much less important with 1.13% for Seagram and -3.05% for Mobil. For the first, it means that the
attempted takeover did not have a substantial impact on Seagrams equity. On the contrary, Mobils
attempted takeover provoked a loss of over $400 million, which is hard to explain. While that loss can
partly be explained by transaction costs and legal fees, the rest is unclear. Otherwise, that fall of equity
value is certainly linked with Mobils antitrust difficulties. On the August 3, the Justice Department
asked for more information about the attempted takeover which raised the fear that the government
could forbid that takeover and also the future acquisition.