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Optimal and strategic timing of mergers and acquisitions motivated by synergies and risk diversification

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  • Thijssen, Jacco J.J.

Abstract

This paper analyses a real options model of mergers and takeovers between two firms experiencing different, but correlated, uncertainty. It is assumed that mergers do not just lead to efficiency gains, but are also an act of diversification. Due to the latter assumption the region where a merger is optimal is a bounded interval and not a half-space as in most real options models. It is shown that if the roles of the bidder and the target are determined endogenously the option value of the mergers vanishes completely, implying that, in equilibrium, the mergers occur sooner than when these roles are exogenously given. It is also shown that mergers can be optimal even if synergies are negative.

Suggested Citation

  • Thijssen, Jacco J.J., 2008. "Optimal and strategic timing of mergers and acquisitions motivated by synergies and risk diversification," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1701-1720, May.
  • Handle: RePEc:eee:dyncon:v:32:y:2008:i:5:p:1701-1720
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    Cited by:

    1. Nishide, Katsumasa & Tian, Yuan, 2011. "Compensation measures for alliance formation: A real options analysis," Economic Modelling, Elsevier, vol. 28(1), pages 219-228.
    2. Wang, Xunxiao & Wu, Chongfeng & Xu, Weidong, 2015. "When to buy or sell in supply chains with the presence of mergers," International Journal of Production Economics, Elsevier, vol. 163(C), pages 137-145.
    3. repec:wsi:afexxx:v:12:y:2017:i:03:n:s2010495217500154 is not listed on IDEAS
    4. A. Mantovi, 2009. "Long run value stabilization in a real options perspective," Economics Department Working Papers 2009-EP01, Department of Economics, Parma University (Italy).
    5. Gamba, Andrea & Tesser, Matteo, 2009. "Structural estimation of real options models," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 798-816, April.
    6. Graham, Jeffrey, 2011. "Strategic real options under asymmetric information," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 922-934, June.
    7. Paulo J. Pereira & Artur Rodrigues, "undated". "A theory on merger timing and announcement returns," NIPE Working Papers 13/2015, NIPE - Universidade do Minho.
    8. repec:oup:rcorpf:v:6:y:2017:i:2:p:174-233. is not listed on IDEAS

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