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Efficient Mechanisms For Mergers And Acquisitions

Author

Listed:
  • Sandro Brusco
  • Giuseppe Lopomo
  • David T. Robinson
  • S. Viswanathan

Abstract

We characterize incentive-efficient merger outcomes when payments can be made both in cash and stock. Each firm has private information about both its stand-alone value and a component of the (possibly negative) potential synergies. We study two cases: when transfers can, and cannot, be made contingent on the value of any new firm. When they can, we show that redistributing shares of any nonmerging firm generates information rents and provides necessary and sufficient conditions for the implementability of efficient merger rules. When they cannot, private information undermines efficiency more when it concerns stand-alone values than synergies. Here, acquisitions emerge as optimal mechanisms. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Sandro Brusco & Giuseppe Lopomo & David T. Robinson & S. Viswanathan, 2007. "Efficient Mechanisms For Mergers And Acquisitions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 995-1035, August.
  • Handle: RePEc:ier:iecrev:v:48:y:2007:i:3:p:995-1035
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    Citations

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    Cited by:

    1. Vlad Mares & Mikhael Shor, 2008. "Industry concentration in common value auctions: theory and evidence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(1), pages 37-56, April.
    2. Onur A. Koska, 2016. "A Consumer-Surplus Standard in Merger Approvals, Foreign Direct Investment, and Welfare," ERC Working Papers 1612, ERC - Economic Research Center, Middle East Technical University, revised Oct 2016.
    3. Thomas Borek & Stefan Bühler & Armin Schmutzler, 2008. "Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach," University of St. Gallen Department of Economics working paper series 2008 2008-15, Department of Economics, University of St. Gallen.
    4. Gao, Ning, 2011. "The adverse selection effect of corporate cash reserve: Evidence from acquisitions solely financed by stock," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 789-808, September.
    5. Koppl, Thorsten V. & Monnet, Cyril, 2007. "Guess what: It's the settlements! Vertical integration as a barrier to efficient exchange consolidation," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3013-3033, October.
    6. Dizdar, Deniz & Moldovanu, Benny, 2016. "On the importance of uniform sharing rules for efficient matching," Journal of Economic Theory, Elsevier, vol. 165(C), pages 106-123.
    7. Nicolas Figueroa & Vasiliki Skreta, 2007. "What to put in the table," Documentos de Trabajo 237, Centro de Economía Aplicada, Universidad de Chile.
    8. Albert Banal‐Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2010. "Screening And Merger Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 794-817, December.
    9. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    10. Jeremy Bulow & Paul Klemperer, 2007. "When are Auctions Best?," Economics Papers 2007-W03, Economics Group, Nuffield College, University of Oxford.
    11. Mike Burkart & Samuel Lee, 2010. "Signaling in Tender Offer Games," FMG Discussion Papers dp655, Financial Markets Group.
    12. Robinson, David T., 2009. "Size, ownership and the market for corporate control," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 80-84, February.
    13. Gärtner, Dennis L. & Schmutzler, Armin, 2009. "Merger negotiations and ex-post regret," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1636-1664, July.
    14. Pagnozzi, Marco & Rosato, Antonio, 2016. "Entry by takeover: Auctions vs. bilateral negotiations," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 68-84.
    15. Gao, Ning, 2015. "The motives of cash reserve and bidder cash reserve effects," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 73-88.

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