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Efficient Mechanisms For Mergers And Acquisitions

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  • Sandro Brusco
  • Giuseppe Lopomo
  • David T. Robinson
  • S. Viswanathan

Abstract

We characterize incentive-efficient merger outcomes when payments can be made both in cash and stock. Each firm has private information about both its stand-alone value and a component of the (possibly negative) potential synergies. We study two cases: when transfers can, and cannot, be made contingent on the value of any new firm. When they can, we show that redistributing shares of any nonmerging firm generates information rents and provides necessary and sufficient conditions for the implementability of efficient merger rules. When they cannot, private information undermines efficiency more when it concerns stand-alone values than synergies. Here, acquisitions emerge as optimal mechanisms. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 48 (2007)
Issue (Month): 3 (08)
Pages: 995-1035

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Handle: RePEc:ier:iecrev:v:48:y:2007:i:3:p:995-1035

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Cited by:
  1. Bulow, Jeremy I & Klemperer, Paul, 2007. "When are Auctions Best?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6393, C.E.P.R. Discussion Papers.
  2. Koppl, Thorsten V. & Monnet, Cyril, 2007. "Guess what: It's the settlements! Vertical integration as a barrier to efficient exchange consolidation," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3013-3033, October.
  3. Robinson, David T., 2009. "Size, ownership and the market for corporate control," Journal of Corporate Finance, Elsevier, Elsevier, vol. 15(1), pages 80-84, February.
  4. Thomas Borek & Stefan Bühler & Armin Schmutzler, 2008. "Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach," University of St. Gallen Department of Economics working paper series 2008 2008-15, Department of Economics, University of St. Gallen.
  5. Albert Banal‐Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2010. "Screening And Merger Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 794-817, December.
  6. Gao, Ning, 2011. "The adverse selection effect of corporate cash reserve: Evidence from acquisitions solely financed by stock," Journal of Corporate Finance, Elsevier, Elsevier, vol. 17(4), pages 789-808, September.
  7. Vasiliki Skreta & Nicolas Figueroa, 2007. "What to Put on the Table," Levine's Bibliography 843644000000000374, UCLA Department of Economics.
  8. Dennis Gaertner & Armin Schmutzler, 2006. "Merger Negotiations and Ex-Post Regret," SOI - Working Papers 0607, Socioeconomic Institute - University of Zurich, revised Dec 2007.
  9. Mike Burkart & Samuel Lee, 2010. "Signaling in Tender Offer Games," FMG Discussion Papers, Financial Markets Group dp655, Financial Markets Group.
  10. Vlad Mares & Mikhael Shor, 2008. "Industry concentration in common value auctions: theory and evidence," Economic Theory, Springer, Springer, vol. 35(1), pages 37-56, April.
  11. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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