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Mergers as Auctions

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  • Ivaldi, Marc
  • Motis, Jrissy

Abstract

Most empirical studies that evaluate motives and gains in M&A conclude that acquirers at best do not lose from the deal while targets obtain positive gains. With a database containing merging firms’ characteristics and final bids, we propose a structural approach to infer acquirers’ gains from merging by interpreting a merger as an auction. Using nonparametric methods, we estimate bidders’ private values for targets and informational rents. We provide evidence of significant and positive merging gains. Moreover, investigating for the source of bidders’ private valuation and informational rents, our empirical analysis supports the synergy hypothesis as a motive in horizontal mergers.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 461.

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Date of creation: Apr 2007
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Handle: RePEc:ide:wpaper:7217

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  1. Molnar, Jozsef, 2007. "Pre-emptive horizontal mergers: theory and evidence," Research Discussion Papers 17/2007, Bank of Finland.
  2. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003. "The effects of mergers: an international comparison," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 21(5), pages 625-653, May.
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  4. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
  5. Ivaldi, Marc & Verboven, Frank, 2005. "Quantifying the effects from horizontal mergers in European competition policy," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(9-10), pages 669-691, December.
  6. Susan Athey & Philip A. Haile, 2006. "Empirical Models of Auctions," Levine's Bibliography 122247000000001045, UCLA Department of Economics.
  7. G. William Schwert, 1994. "Mark-Up Pricing in Mergers and Acquisitions," NBER Working Papers 4863, National Bureau of Economic Research, Inc.
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  9. Dennis C. Mueller & Mark L. Sirower, 2003. "The causes of mergers: tests based on the gains to acquiring firms' shareholders and the size of premia," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 373-391.
  10. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series, Research Institute of Industrial Economics 543, Research Institute of Industrial Economics.
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  13. Joseph Farrell & Carl Shapiro, 2001. "Scale Economies and Synergies in Horizontal Merger Analysis," Industrial Organization, EconWPA 0012002, EconWPA, revised 05 Jan 2001.
  14. Cramton, Peter & Schwartz, Alan, 1991. "Using Auction Theory to Inform Takeover Regulation," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(1), pages 27-53, Spring.
  15. Jehiel, Phillipe & Moldovanu, Benny, 1997. "Auctions with Downstream Interaction among Buyers," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 97-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  16. Dennis Mueller & Burkhard Raunig, 1999. "Heterogeneities within Industries and Structure-Performance Models," Review of Industrial Organization, Springer, Springer, vol. 15(4), pages 303-320, December.
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  18. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
  19. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  20. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 7-20, Winter.
  21. Sven-Olof Fridolfsson & Johan Stennek, 2001. "Why Mergers Reduce Profits and Raise Share Prices: A Theory of Preemptive Mergers," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 01-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  22. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, Elsevier, vol. 11(1-4), pages 5-50, April.
  23. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, Econometric Society, vol. 68(3), pages 525-574, May.
  24. Vuong, Q. & Laffont, J.J. & Elyakime, B. & Loisel, P., 1995. "Auctioning and Bargaining: An Econometric Study of Timber Auctions with Secret Reservation Prices," Papers, Southern California - Department of Economics 9502, Southern California - Department of Economics.
  25. Aktas, Nihat & Bodt, Eric de & Roll, Richard, 2004. "European M&A Regulation is Protectionist," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt9gd3x41d, Anderson Graduate School of Management, UCLA.
  26. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, Elsevier, vol. 31(2), pages 135-175, April.
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