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It Takes Two to Tango.. La fusion : exercice de deux options réelles

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  • Moez Souissi
  • Pierre Lasserre

Abstract

We analyze mergers from the standpoint of the merging firms. We show that the date of completion of a decentralized merger is suboptimal. The reason is that the merger is a simultaneous decision by two firms, and that its date is therefore determined by their strategic considerations. We model the merger as the simultaneous exercise of two real options and introduce two bargaining mechanisms for the division of the merger rent: the Stackelberg game and the Rubinstein game. In the first, which applies to hostile mergers, all the bargaining power rests with one firm. In the second, which is more suitable for assessing friendly mergers, neither firm has a negotiating advantage. In both cases, we show that the merger occurs at a date that is Pareto suboptimal because too delayed. This phenomenon is more pronounced in hostile mergers than in friendly mergers.

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  • Moez Souissi & Pierre Lasserre, 2007. "It Takes Two to Tango.. La fusion : exercice de deux options réelles," Economie & Prévision, La Documentation Française, vol. 0(2), pages 51-65.
    • Handle: RePEc:cai:ecoldc:ecop_178_0051
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