The Dynamics of Mergers and Acquisitions

By Erwan Morellec, Alexei Zdhanov. 2005

209 citations recorded by the source corpus.

This paper presents a dynamic model of takeovers based on the stock market valuations of merging firms. The model incorporates competition and imperfect information and determines the terms and timing of takeovers by solving option exercise games between bidding and target shareholders. The implications of the model for returns to stockholders are consistent with the available evidence. Notably, the model predicts that (1) returns to target shareholders should be larger than returns to bidding shareholders, and (2) returns to bidding share-holders can be negative if there is competition for the acquisition of the target. In addition, the model generates new predictions relating these returns to the drift, volatility and correlation coefficient of the bidder and the target stock returns and to the dispersion of beliefs regarding the benefits of the takeover.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/e3f590ef570afe383b8a74a7e3284e42dfc4ebf4

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In Accounting

1. Hayne E. Leland
2. Ilya A. Strebulaev
3. Zhiguo He
4. J. Peña
5. Santiago Forte

Citations in the corpus

• Stock Returns in Mergers and Acquisitions (2008, unknown): “will consider a situation in which there are two potential acquirers, firm 1 and firm 2. Second, we consider that management has complete information regarding the potential benefits of the takeover, but can not communicate this information to shareholders [as in Carlson, Fisher and Giammarino (2005”
• Financing and takeovers (2008, unknown): “Lambrecht (2004), Morellec and Zhdanov (2005), Lambrecht and Myers (2007), Margsiri, Mello, and Ruckes (2005), and Hackbarth and Morellec (2008) develop real options models to analyze the timing and terms of takeovers.”
• The Real Effects of Uncertainty on Merger Activity (2016, unknown): “Of course, higher uncertainty also increases the value of waiting to exercise the “option to merge” (Lambrecht, 2004; Morellec and Zhdanov, 2005), predicting similar empirical relationships between volatility and merger activity.”
• Financial Synergies and the Optimal Scope of the Firm: Implications for Mergers, Spinoffs, and Structured Finance (2007, background): “Morellec and Zhdanov (2005) use a continuous time model to consider mergers as exchange options.”
• A Theory of Takeovers and Disinvestment (2007, unknown): “Morellec and Zhdanov (2005) develop a real-options model that examines the role of multiple bidders and imperfect information on takeover activity.”
• Real Options Signaling Games with Applications to Corporate Finance (2011, unknown): “Stulz (1990), Harris and Raviv (1996), Bernardo, Cai, and Luo (2001), and Malenko (2011) model the manager as having preferences for perquisite consumption or empire–building.”