Over the last few years, the French Stock Exchange has been particularly hit by an important phenomenon, namely takeover bid rumors. Following the emergence of rumors concerning their potential acquisition, groups such as Hermès, Société Générale or Danone have experienced excessive share price volatility. Since 2006, attesting to the seriousness of the issue, the AMF has set in place a specific management mechanism to deal with this type of rumours.

In this context, the main goal of our study was to examine the short-term performance of companies subject to takeover rumors and to identify their determining factors. The study thus covered the French Stock Exchange and focused on 200 rumors collected between 1997 and 2011, using the Factiva database.

The results of the event study show positive abnormal returns around the date of appearance of the rumors in the media. Our findings also show that the price reaction reaches its peak around the 50th day after that date. Holding stock prices target- ed by this type of operation thus proves to be highly beneficial to investors, bringing an average gain of almost 4%.

Based on hypotheses predicting takeovers and on the determining factors for the premium offered to the shareholders of the target companies, we have also presented a model de- signed to examine the variations of the abnormal performance of target companies over the period following the appearance of the takeover rumors. Three categories of explanatory variables were identified: credibility, rumor characteristics, and expected results (interests) of the takeover.

We found that the investors’ potential gain varies positively with the free oat, the intensity of publication, the rationale presented, the time of appearance, and the free cash ow level of the target. Conversely, a negative gain relation was found with the market-to-book ratio and the size of targets. The shareholders’ premium tends to diminish after 2006, in other words after the implementation of the law concerning declarations of intent related to takeover rumors.