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Corporate acquisistion process: is there an optimal cash-equity payment mix?

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  • Hubert De La Bruslerie

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)

Abstract

This paper examines the combination of cash and share payments proposed in the corporate acquisition process. Particularly, it analyzes the conditions of an optimal mixed payment in the context of an asymmetry of information. Using a model, we highlight that setting the conditions of payment is an endogenous part of a takeover agreement between the acquirer and the target. Our contribution is to show how, in the acquisition process, the setting of the cash percentage is a key element for conveying private information on the gains of synergy and the gains that result from the transaction. In our model, we internalize asymmetries of information and possible exaggeration biases. Both will influence the joint setting of a mixed payment scheme.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00636349.

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Date of creation: 2012
Date of revision:
Publication status: Published, International Review of Law and Economics, 2012, 32, 83-94
Handle: RePEc:hal:journl:halshs-00636349

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00636349
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Related research

Keywords: mergers and acquisitions; information asymmetry; means of payment; contractual approach; synergy gains;

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References

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  1. Martynova, M. & Renneboog, L.D.R., 2006. "Mergers and Acquisitions in Europe," Discussion Paper 2006-003, Tilburg University, Tilburg Law and Economic Center.
  2. Martynova, M. & Renneboog, L.D.R., 2008. "What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems or the Means of Payment?," Discussion Paper 2008-66, Tilburg University, Center for Economic Research.
  3. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
  4. Houston, Joel F & Ryngaert, Michael D, 1997. " Equity Issuance and Adverse Selection: A Direct Test Using Conditional Stock Offers," Journal of Finance, American Finance Association, vol. 52(1), pages 197-219, March.
  5. Saeyoung Chang, 1998. "Takeovers of Privately Held Targets, Methods of Payment, and Bidder Returns," Journal of Finance, American Finance Association, vol. 53(2), pages 773-784, 04.
  6. Fishman, Michael J, 1989. " Preemptive Bidding and the Role of the Medium of Exchange in Acquisitions," Journal of Finance, American Finance Association, vol. 44(1), pages 41-57, March.
  7. Goergen, Marc & Renneboog, Luc, 2003. "Shareholder Wealth Effects of European Domestic and Cross-Border Takeover Bids," EIFC - Technology and Finance Working Papers 20, United Nations University, Institute for New Technologies.
  8. Lucian Arye Bebchuk, 1995. "Efficient and Inefficient Sales of Corporate Control," NBER Working Papers 4788, National Bureau of Economic Research, Inc.
  9. Paul André & Maher Kooli & Jean-François L’Her, 2004. "The Long-Run Performance of Mergers and Acquisitions: Evidence from the Canadian Stock Market," Financial Management, Financial Management Association, vol. 33(4), Winter.
  10. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  11. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  12. Linn, Scott C. & Switzer, Jeannette A., 2001. "Are cash acquisitions associated with better postcombination operating performance than stock acquisitions?," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1113-1138, June.
  13. Mara Faccio & Ronald W. Masulis, 2005. "The Choice of Payment Method in European Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 60(3), pages 1345-1388, 06.
  14. Amihud, Yakov & Lev, Baruch & Travlos, Nickolaos G, 1990. " Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions," Journal of Finance, American Finance Association, vol. 45(2), pages 603-16, June.
  15. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  16. Chang, Saeyoung & Mais, Eric, 2000. "Managerial Motives and Merger Financing," The Financial Review, Eastern Finance Association, vol. 35(4), pages 139-52, November.
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Citations

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Cited by:
  1. Humphery-Jenner, Mark, 2012. "The impact of the EU takeover directive on takeover performance and empire building," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 254-272.
  2. Paugam, Luc, 2011. "Valorisation et reporting du goodwill : enjeux théoriques et empiriques," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8007 edited by Casta, Jean-François.

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