Takeover Timing, Implementation Uncertainty, and Embedded Divestment Options
AbstractWe design a compound real options model, which determines the timing of takeovers and characterizes the distribution of the associated surplus. We delineate a relation between the bargaining power of the acquiring firm and the takeover incentives. The takeover threshold is decreasing as a function of the expected primary takeover gain and the embedded divestment gain. Decreased implementation uncertainty stimulates takeover activity. This uncertainty concerns the delay until either primary takeover synergies or subsequent divestment gains are realized. We demonstrate how the relation between volatility and takeover timing depends on the functional form of the profit flow with implementation uncertainty. Copyright Oxford University Press 2006
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Bibliographic InfoArticle provided by European Finance Association in its journal Review of Finance.
Volume (Year): 10 (2006)
Issue (Month): 3 (September)
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- Lukas, Elmar & Welling, Andreas, 2012. "Negotiating M&As under uncertainty: The influence of managerial flexibility on the first-mover advantage," Finance Research Letters, Elsevier, vol. 9(1), pages 29-35.
- Utz Weitzel & Stephanie Rosenkranz, 2007.
"Bargaining in Mergers and Termination Fees,"
07-06, Utrecht School of Economics.
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