A real options approach to tender offers and acquisitions processes
Corporate control has added value for an investor since it gives degrees of freedom about the use of assets, sources of finance, salaries, etc. On the other hand, real options create value through the flexibility associated to the ability to react to some relevant uncertainty. The process of acquisition of corporate control can have two real options associated, a waiting option and a growth option. In the waiting option value is created through sequential investment instead of investing at once, while the growth option carries all the private benefits the investor can seize from control by making follow up investments, which can also justify premiums paid above the former market price. A relevant proposition of our paper is that the exercise price of the growth option (and hence the amount to be paid as the control premium) can be affected by the release of information. We develop a model for these two theoretical extremes, one where the exercise price fully reacts to events, and one where the exercise price does not react at all, and we obtain that the timing of the process of acquiring control would depend on the reaction of the price to be paid to obtain control, so would the size of the control premium over the former price.
|Date of creation:||Feb 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (5411) 6314-3000
Fax: (5411) 4314-1654
Web page: http://www.cema.edu.ar/publicaciones/doc_trabajo.html
More information through EDIRC
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.:
- Bernardo, Antonio E. & Chowdhry, Bhagwan, 2002. "Resources, real options, and corporate strategy," Journal of Financial Economics, Elsevier, vol. 63(2), pages 211-234, February.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Grossman, Sanford J & Kihlstrom, Richard E & Mirman, Leonard J, 1977. "A Bayesian Approach to the Production of Information and Learning by Doing," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 533-47, October.
When requesting a correction, please mention this item's handle: RePEc:cem:doctra:232. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding)
If references are entirely missing, you can add them using this form.