×

zbMATH — the first resource for mathematics

A pre-emption model of mergers. (English) Zbl 1402.91170
Summary: 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.
MSC:
91B26 Auctions, bargaining, bidding and selling, and other market models
PDF BibTeX XML Cite
Full Text: DOI
References:
[1] Agrawal, A; Jaffe, JF; Cooper, G (ed.); Gregory, A (ed.), The post-merger performance puzzle, No. 1, 7-41, (2000), Amsterdam
[2] Agrawal, A; Jaffe, JF; Mandelker, GN, The post-merger performance of acquiring firms: a re-examination of an anomaly, J Finance, 47, 1605-1621, (1992)
[3] Akdogu E (2011) Value-maximizing managers, value-increasing mergers and overbidding. J Financ Quant Anal 46(1):83-110
[4] Andrade, G; Mitchell, ML; Stafford, E, New evidence and perspectives on mergers, J Econ Perspect, 15, 103-120, (2001)
[5] Antoniou, A; Arbour, P; Zhao, H, How much is too much: are merger premiums too high?, Eur Financ Manage, 14, 268-287, (2008)
[6] Asquith, P, Merger bids, uncertainty, and stockholder returns, J Financ Econ, 11, 51-83, (1983)
[7] Boone, A; Mulherin, H, How are firms sold?, J Finance, 62, 847-875, (2007)
[8] Boone, A; Mulherin, H, Do auctions induce a winner’s curse? new evidence from the corporate takeover market, J Financ Econ, 89, 1-19, (2008)
[9] Brito, D, Preemptive mergers under spatial competition, Int J Ind Org, 10, 1601-1622, (2003)
[10] Bulow, J; Klemperer, P, Auctions vs. negotiations, Am Econ Rev, 86, 180-194, (1996)
[11] Cain CL, Macias AJ, Sanchez JM (2011) Do targets benefit from auctions?. Purdue University, Working paper, The role of private information
[12] Cantillon, E, The effect of bidders’ asymmetries on expected revenue in auctions, Games Econ Behav, 62, 1-25, (2008) · Zbl 1135.91353
[13] Dasgupta, S; Robert, H; Eckbo, BE (ed.), Auctions in corporate finance, 87-143, (2006), North-Holland
[14] Deneckere R, Davidson C (1985) Incentives to form coalitions with Bertrand competition. RAND J Econ 16(4):473-486
[15] Dixit, AK, Comparative statics for oligopoly, Int Econ Rev, 27, 107-122, (1986) · Zbl 0584.90012
[16] The Economist (2003) The return of the deal, vol 368, July 12, London (2003)
[17] Eckbo, BE, Bidding strategies and takeover premiums: a review, J Corp Finance, 15, 149-178, (2009)
[18] Farrell, J; Shapiro, C, Horizontal mergers: an equilibrium analysis, Am Econ Rev, 80, 107-126, (1990)
[19] Firth, M, The profitability of takeovers and mergers, Econ J, 89, 316-28, (1979)
[20] Fishman, MJ, A theory of preemptive takeover bidding, RAND J Econ, 19, 88-101, (1988)
[21] Franks, JR; Harris, RS, Shareholder wealth effects of corporate takeovers: the U.K. experience 1955-1985, J Financ Econ, 23, 225-49, (1989)
[22] Fridolfsson, S-O; Stennek, J, Why mergers reduce profits and raise prices: a theory of preemptive mergers, J Eur Econ Assoc, 3, 1083-1104, (2005)
[23] Gregory, A, An examination of the long run performance of UK acquiring firms, J Bus Finance Account, 24, 971-1002, (1997)
[24] Hansen, RG, Auction of companies, Econ Inq, 39, 30-43, (2001)
[25] Hartzell, JC; Ofek, E; Yermack, D, What’s in it for me? CEOs whose firms are acquired, Rev Financ Stud, 17, 37-61, (2004)
[26] Hirshleifer, D; Png, IPL, Facilitation of competing bids and the price of a takeover target, Rev Financ Stud, 2, 587-606, (1989)
[27] Jensen, MC; Ruback, RS, The market for corporate control: the scientific evidence, J Financ Econ, 11, 5-50, (1983)
[28] Kennedy, VA; Limmack, RJ, Takeover activity. CEO turnover, and the market for corporate control, J Bus Finance Account, 23, 267-85, (1996)
[29] Loughran, T; Vijh, AM, Do long-term shareholders benefit from corporate acquisitions?, J Finance, 52, 1765-90, (1997)
[30] Martin S (2002) Advanced industrial economics. Blackwell, Oxford
[31] Martynova, M; Renneboog, L, A century of corporate takeovers: what have we learned and where do we stand?, J Bank Finance, 32, 2148-2177, (2008)
[32] Marquez, R; Yilmaz, B, Information and efficiency in tender offers, Econometrica, 76, 1075-1101, (2008) · Zbl 1152.91470
[33] Megginson, WL; Morgan, A; Nail, L, The determinants of positive long-term performance in strategic mergers: corporate focus and cash, J Bank Finance, 28, 523-52, (2004)
[34] Molnár J (2007) Preemptive horizontal mergers: theory and evidence. Working paper
[35] Povel, P; Singh, R, Takeover contests with asymmetric bidders, Rev Financ Studies, 19, 1399-1431, (2006)
[36] Roll, R, The hubris hypothesis of corporate takeovers, J Bus, 59, 197-216, (1986)
[37] Salant, SW; Switzer, S; Reynolds, RJ, Losses from horizontal merger: the effects of an exogenous change in industry structure on Cournot-Nash equilibrium, Q J Econ, 98, 185-199, (1983)
[38] Shleifer, A; Vishny, RW, Stock market driven acquisitions, J Financ Econ, 70, 295-311, (2003)
[39] Stigler, G, Monopoly and oligopoly by merger, Am Econ Rev, 40, 23-34, (1950)
[40] Toxvaerd, F, Strategic merger waves: a theory of musical chairs, J Econ Theory, 140, 1-26, (2008) · Zbl 1136.91546
[41] Ye, L, Indicative bidding and a theory of two-stage auctions, Games Econ Behav, 58, 181-207, (2008) · Zbl 1154.91419
[42] Zhao J (2004) Merger incentives and inverse matrices from bertrand competition. Econometric Society 2004 North American Summer Meetings
[43] Zhao, J, Estimating merging costs by merger preconditions, Theory Decis, 66, 373-399, (2009) · Zbl 1163.91525
[44] Zhao, J, Necessary and sufficient conditions for the optimal number of firms, J Econ, 98, 235-246, (2009) · Zbl 1195.91099
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.