ZUSAMMENFASSUNG - (Warum Fusionen Profite reduzieren und Aktienpreise steigen lassen)
Es wird ein "Mechanismus der Gewinnung eines Vorsprungs durch Fusion" aufgezeigt, der eventuell das empirische Rätsel, warum Fusionen Profite reduzieren und Aktienpreise steigen lassen, erklären kann. Eine Fusion kann starke negative externe Effekte bei den Unternehmen auslösen, die nicht an der Fusion beteiligt sind. Wenn es besser ist ein "Insider" zu sein als ein "Outsider", kann es sein, dass Firmen Fusionieren um dem zuvorzukommen, dass ihre Partner mit jemand anderem fusionieren. Desweiteren ist der Wert eines fusionierenden Unternehmens vor der Fusion niedrig, da er das Risiko ein Outsider zu werden reflektiert. Diese Ergebnisse werden aus einem Modell endogener Fusionen abgeleitet, welches die Bedingungen unter denen eine Fusion stattfindet, wann sie stattfindet und wie der Überschuss verteilt werden wird, vorhersagt.">

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Why Mergers Reduce Profits and Raise Share Prices: A Theory of Preemptive Mergers

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Author Info
Sven-Olof Fridolfsson
Johan Stennek

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Abstract

We explain the empirical puzzle why mergers reduce profits and raise share prices. If being an "insider" is better than being an "outsider," firms may merge to preempt their partner merging with a rival. The stock-value of the insiders is increased, since the risk of becoming an outsider is eliminated. We also explain why shareholders of targets gain while acquirers typically break even. These results are derived in an endogenousmerger model, predicting the conditions under which mergers occur, when they occur, and how the surplus is shared.

ZUSAMMENFASSUNG - (Warum Fusionen Profite reduzieren und Aktienpreise steigen lassen)
Es wird ein "Mechanismus der Gewinnung eines Vorsprungs durch Fusion" aufgezeigt, der eventuell das empirische Rätsel, warum Fusionen Profite reduzieren und Aktienpreise steigen lassen, erklären kann. Eine Fusion kann starke negative externe Effekte bei den Unternehmen auslösen, die nicht an der Fusion beteiligt sind. Wenn es besser ist ein "Insider" zu sein als ein "Outsider", kann es sein, dass Firmen Fusionieren um dem zuvorzukommen, dass ihre Partner mit jemand anderem fusionieren. Desweiteren ist der Wert eines fusionierenden Unternehmens vor der Fusion niedrig, da er das Risiko ein Outsider zu werden reflektiert. Diese Ergebnisse werden aus einem Modell endogener Fusionen abgeleitet, welches die Bedingungen unter denen eine Fusion stattfindet, wann sie stattfindet und wie der Überschuss verteilt werden wird, vorhersagt.

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Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 01-26.

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Length: 45 pages
Date of creation: Dec 2001
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Publication status: Published in the Journal of European Economic Association, Vol. 3(5), September 2005, pp. 1083-1104.
Handle: RePEc:wzb:wzebiv:fsiv01-26

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Related research
Keywords: Mergers Acquisitions Defensive Mergers Coalition Formation

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Schwert, G. William, 1996. "Markup pricing in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 41(2), pages 153-192, June. [Downloadable!] (restricted)
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  2. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April. [Downloadable!] (restricted)
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    Other versions:
  5. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
  6. Fridolfsson, S.-O. & Stennek, J., 1999. "Why Mergers Reduce Profits, and Raise Share Prices," Papers 511, Industrial Institute for Economic and Social Research.
    Other versions:
  7. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May. [Downloadable!] (restricted)
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  10. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November. [Downloadable!] (restricted)
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  11. Kamien, Morton I. & Zang, Israel, 1991. "Competitively cost advantageous mergers and monopolization," Games and Economic Behavior, Elsevier, vol. 3(3), pages 323-338, August. [Downloadable!] (restricted)
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  12. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms1," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August. [Downloadable!] (restricted)
  13. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April. [Downloadable!] (restricted)
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  14. Houston, Joel F. & Ryngaert, Michael D., 1994. "The overall gains from large bank mergers," Journal of Banking & Finance, Elsevier, vol. 18(6), pages 1155-1176, December. [Downloadable!] (restricted)
  15. Horn, Henrik & Persson, Lars, 2001. "Endogenous mergers in concentrated markets," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1213-1244, September. [Downloadable!] (restricted)
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  16. James D. Reitzes & David T. Levy, 1995. "Price Discrimination and Mergers," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 427-36, May. [Downloadable!] (restricted)
  17. Stulz, Rene M & Walkling, Ralph A & Song, Moon H, 1990. " The Distribution of Target Ownership and the Division of Gains in Successful Takeovers," Journal of Finance, American Finance Association, vol. 45(3), pages 817-33, July. [Downloadable!] (restricted)
  18. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March. [Downloadable!] (restricted)
  19. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  20. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
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  21. Fudenberg, Drew & Tirole, Jean, 1985. "Preemption and Rent Equilization in the Adoption of New Technology," Review of Economic Studies, Blackwell Publishing, vol. 52(3), pages 383-401, July. [Downloadable!] (restricted)
  22. Michael J. Fishman, 1988. "A Theory of Preemptive Takeover Bidding," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 88-101, Spring. [Downloadable!] (restricted)
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  24. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  25. Ramon Fauli-Oller & Massimo Motta, 1996. "Managerial Incentives for Takeovers," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(4), pages 497-514, December. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Albert Banal-Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslacht, 2006. "Merger Clusters during Economic Booms," City University Economics Discussion Papers 06/07, Department of Economics, City University, London. [Downloadable!]
    Other versions:
  2. Roman Inderst & Christian Wey, 2004. "The Incentives for Takeover in Oligopoly," Discussion Papers of DIW Berlin 423, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  3. Rafael Moner Colonques & Ricardo Flores Fillol, 2006. "Strategic Effects Of Airline Alliances," Working Papers. Serie AD 2006-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  4. Fridolfsson, Sven-Olof & Stennek, Johan, 2006. "Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers," CEPR Discussion Papers 5977, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Barros, Pedro Pita & Clougherty, Joseph A & Seldeslachts, Jo, 2007. "Remedy for Now but Prohibit for Tomorrow: The Deterrence Effects of Merger Policy Tools," CEPR Discussion Papers 6437, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Stefania Borla, . "Profitability of Horizontal Mergers with Price Interdependencies," Discussion Papers 04/13, Department of Economics, University of York. [Downloadable!]
  7. Albert Banal-Estañol & Jo Seldeslachts, 2005. "Merger Failures," CIG Working Papers SP II 2005-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  8. Ivaldi, Marc & Motis, Jrissy, 2007. "Mergers as Auctions," CEPR Discussion Papers 6434, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Toxvaerd, Flavio, 2007. "Strategic Merger Waves: A Theory of Musical Chairs," CEPR Discussion Papers 6159, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  10. Albert Banal-Estaño & Inés Macho-Stadler & Jo Seldeslachts, 2004. "Mergers, Investment Decisions and Internal Organisation," CIG Working Papers SP II 2004-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  11. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2006. "Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  12. Granier, L. & Trinquard, S., 2007. "Mergers and Barriers to Entry In Pharmaceutical Markets," Cahiers du LASER (LASER Working Papers) 2007.21, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1. [Downloadable!]
  13. Inês CABRAL, 2002. "A Herding Approach to Merger Waves," Economics Working Papers ECO2002/26, European University Institute. [Downloadable!]
  14. Lars-Hendrik Röller & Johan Stennek & Frank Verboven, 2000. "Efficiency Gains from Mergers," CIG Working Papers FS IV 00-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  15. Kjell Erik Lommerud & Odd Rune Straume & Lars Sorgard, . "Merger Profitability in Unionized Oligopoly," University of California Santa Barbara - Department of Economics 10-00, California Santa Barbara - Department of Economics. [Downloadable!]
    Other versions:
  16. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Molnar, Jozsef, 2007. "Pre-emptive horizontal mergers: theory and evidence," Research Discussion Papers 17/2007, Bank of Finland. [Downloadable!]
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