Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

A pre-emption model of mergers

A pre-emption model of mergers This paper studies the paradox of the value destroying mergers in a sequential negotiation model in which the synergy accrued from the mergers is private information. This study shows that in a simultaneous competitive bidding process, the winner’s curse of overpaying rarely occurs but may arise in the target firm initiated sequential negotiations; and if the merger is successful then the outcome is never value destroying for the combined firm. Thus the acquirer’s overpayment cannot be considered as the ‘winner’s curse’ that results from the post-announcement competitive bidding but rather than the result of the target’s strengthened bargaining power in the sequential negotiations. The implications and intuition of such value-destroying mergers thus differ substantially from that of existing pre-emptive mergers and acquisitions models that use a simultaneous bidding mechanism. The results also imply that the ‘acquisition premium’ accrues to the target firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economics Springer Journals

A pre-emption model of mergers

Dong, Baomin; Wang, Frank
Journal of Economics , Volume 113 (2) – Nov 9, 2013
Download PDF
18 pages

Loading next page...
 
/lp/springer-journals/a-pre-emption-model-of-mergers-gr2Lhl2RHR
Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer-Verlag Wien
Subject
Economics / Management Science; Economics general; Economic Theory; International Economics; Microeconomics; R & D/Technology Policy
ISSN
0931-8658
eISSN
1617-7134
DOI
10.1007/s00712-013-0379-8
Publisher site
See Article on Publisher Site

Abstract

This paper studies the paradox of the value destroying mergers in a sequential negotiation model in which the synergy accrued from the mergers is private information. This study shows that in a simultaneous competitive bidding process, the winner’s curse of overpaying rarely occurs but may arise in the target firm initiated sequential negotiations; and if the merger is successful then the outcome is never value destroying for the combined firm. Thus the acquirer’s overpayment cannot be considered as the ‘winner’s curse’ that results from the post-announcement competitive bidding but rather than the result of the target’s strengthened bargaining power in the sequential negotiations. The implications and intuition of such value-destroying mergers thus differ substantially from that of existing pre-emptive mergers and acquisitions models that use a simultaneous bidding mechanism. The results also imply that the ‘acquisition premium’ accrues to the target firms.

Journal

Journal of Economics – Springer Journals

Published: Nov 9, 2013

References

  • JAI series: advances in mergers and acquisitions
    Agrawal, A; Jaffe, JF
  • The post-merger performance of acquiring firms: a re-examination of an anomaly
    Agrawal, A; Jaffe, JF; Mandelker, GN
  • Value-maximizing managers, value-increasing mergers and overbidding
    Akdogu, E
  • New evidence and perspectives on mergers
    Andrade, G; Mitchell, ML; Stafford, E
  • How much is too much: are merger premiums too high?
    Antoniou, A; Arbour, P; Zhao, H
  • Merger bids, uncertainty, and stockholder returns
    Asquith, P
  • How are firms sold?
    Boone, A; Mulherin, H
  • Do auctions induce a winner’s curse? New evidence from the corporate takeover market
    Boone, A; Mulherin, H
  • Preemptive mergers under spatial competition
    Brito, D
  • Auctions vs. negotiations
    Bulow, J; Klemperer, P
  • The effect of bidders’ asymmetries on expected revenue in auctions
    Cantillon, E
  • The handbook of corporate finance: empirical corporate finance
    Dasgupta, S; Robert, H
  • Incentives to form coalitions with Bertrand competition
    Deneckere, R; Davidson, C
  • Comparative statics for oligopoly
    Dixit, AK
  • Bidding strategies and takeover premiums: a review
    Eckbo, BE
  • Horizontal mergers: an equilibrium analysis
    Farrell, J; Shapiro, C
  • The profitability of takeovers and mergers
    Firth, M
  • A theory of preemptive takeover bidding
    Fishman, MJ
  • Shareholder wealth effects of corporate takeovers: the U.K. experience 1955–1985
    Franks, JR; Harris, RS
  • Why mergers reduce profits and raise prices: a theory of preemptive mergers
    Fridolfsson, S-O; Stennek, J
  • An examination of the long run performance of UK acquiring firms
    Gregory, A
  • Auction of companies
    Hansen, RG
  • What’s in it for me? CEOs whose firms are acquired
    Hartzell, JC; Ofek, E; Yermack, D
  • Facilitation of competing bids and the price of a takeover target
    Hirshleifer, D; Png, IPL
  • The market for corporate control: the scientific evidence
    Jensen, MC; Ruback, RS
  • Takeover activity. CEO turnover, and the market for corporate control
    Kennedy, VA; Limmack, RJ
  • Do long-term shareholders benefit from corporate acquisitions?
    Loughran, T; Vijh, AM
  • Advanced industrial economics
    Martin, S
  • A century of corporate takeovers: what have we learned and where do we stand?
    Martynova, M; Renneboog, L
  • Information and efficiency in tender offers
    Marquez, R; Yilmaz, B
  • The determinants of positive long-term performance in strategic mergers: corporate focus and cash
    Megginson, WL; Morgan, A; Nail, L
  • Takeover contests with asymmetric bidders
    Povel, P; Singh, R
  • The hubris hypothesis of corporate takeovers
    Roll, R
  • Losses from horizontal merger: the effects of an exogenous change in industry structure on Cournot-Nash equilibrium
    Salant, SW; Switzer, S; Reynolds, RJ
  • Stock market driven acquisitions
    Shleifer, A; Vishny, RW
  • Monopoly and oligopoly by merger
    Stigler, G
  • Strategic merger waves: a theory of musical chairs
    Toxvaerd, F
  • Indicative bidding and a theory of two-stage auctions
    Ye, L
  • Estimating merging costs by merger preconditions
    Zhao, J
  • Necessary and sufficient conditions for the optimal number of firms
    Zhao, J