Efficient mechanisms for mergers and acquisitions

Journal Article (Journal Article)

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. © 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Full Text

Duke Authors

Cited Authors

  • Brusco, S; Lopomo, G; Robinson, DT; Viswanathan, S

Published Date

  • August 1, 2007

Published In

Volume / Issue

  • 48 / 3

Start / End Page

  • 995 - 1035

Electronic International Standard Serial Number (EISSN)

  • 1468-2354

International Standard Serial Number (ISSN)

  • 0020-6598

Digital Object Identifier (DOI)

  • 10.1111/j.1468-2354.2007.00452.x

Citation Source

  • Scopus