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Pre-emptive horizontal mergers: theory and evidence

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  • Molnar, Jozsef

    ()
    (Bank of Finland Research)

Abstract

This paper proposes and tests an explanation as to why rational managers seeking to maximize shareholder value can pursue value-decreasing mergers. It can be optimal to overpay for a target firm and decrease shareholder value if the loss is less than in an alternative where the merger is undertaken by a product market rival. This paper presents a model based on synergies, market power and competition for merger targets. Consistent with the model the empirical results obtained here show a strong correlation between the returns of acquiring firms and close rivals around merger events.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 17/2007.

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Length: 37 pages
Date of creation: 11 Oct 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_017

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: acquisitions; auction; event study; oligopoly; preemption;

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References

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Citations

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Cited by:
  1. Ivaldi, Marc & Motis, Jrissy, 2007. "Mergers as Auctions," CEPR Discussion Papers 6434, C.E.P.R. Discussion Papers.
  2. Jozsef Molnar & Gabor Virag, 2001. "Optimal auctions with externalities and signaling," IEHAS Discussion Papers 0112, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Tomaso Duso & Klaus Gugler & Burcin Yurtoglu, 2005. "EU Merger Remedies: A Preliminary Empirical Assessment," CIG Working Papers SP II 2005-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Albert Banal-Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2006. "Merger Clusters during Economic Booms," CIG Working Papers SP II 2006-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  5. Joseph A. Clougherty & Tomaso Duso, 2010. "Using Rival Effects to Identify Synergies and Improve Merger Typologies," CIG Working Papers SP II 2010-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  6. Clougherty, Joseph A & Duso, Tomaso, 2008. "The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger," CEPR Discussion Papers 6867, C.E.P.R. Discussion Papers.
  7. Inderst, Roman & Wey, Christian, 2004. "The incentives for takeover in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1067-1089, November.
  8. Akdogu, Evrim, 2009. "Gaining a competitive edge through acquisitions: Evidence from the telecommunications industry," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 99-112, February.
  9. Rosato, Antonio, 2008. "“Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target," MPRA Paper 15083, University Library of Munich, Germany, revised 07 Jan 2009.
  10. Banal-Estanol, Albert & Heidhues, Paul & Nitsche, Rainer & Seldeslachts, Jo, 2009. "Screening and Merger Activity," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 270, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  11. Dodonova, Anna, 2013. "Preemptive bidding in takeover auctions with externality," Journal of Economics and Business, Elsevier, vol. 69(C), pages 35-44.
  12. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers.

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