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Merger Control With Transfers from the Capital Gains Tax and Asset Divestments

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  • Arnaud Féral

    () (THEMA, Department of Economics, Cergy-Pontoise University)

Abstract

In a Cournot model of takeover under asymmetric information, we identify a link between efficiency gains and structural remedies, we show that more efficient Insiders are asked to divest a bigger part of their assets. Aware that a unique tool is insufficient to make Insider revealing their type, we allow the Antitrust Agency to choose the mix of cash and stock used as payment for the target, which indirectly defines a transfer. Relying on the medium of paiement literature we show that the merger is even more costly for Insiders when the amount of cash in the mix bid is more important, because of capital gains tax compensations. We introduce a relevant limited liability problem in the model, since the AA cannot ask higher transfers than those underlying to the all cash procedure. In this context we show that inefficient Insiders divest more than their First Best and make an all cash offer, whereas efficient Insider divest their First best and incorporate less cash in the global bid.

Suggested Citation

  • Arnaud Féral, 2006. "Merger Control With Transfers from the Capital Gains Tax and Asset Divestments," THEMA Working Papers 2006-05, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2006-05
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    File URL: http://www.u-cergy.fr/IMG/documents//2006-05.pdf
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    Keywords

    Merger control; structural remedies; asymmetric information; Medium of paiement; Limited liability;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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