The Economics of Club Bidding and Value Creation
University of California, Davis
University of Minnesota - Twin Cities - Carlson School of Management
August 15, 2012
Journal of Financial Economics (JFE), Forthcoming
Many acquisitions are conducted by clubs, i.e., coalitions of acquirers that submit a single bid. We present a novel analysis of club bidding where the club creates value by aggregating, at least partially, bidders' values. We show that club formation can lead to higher acquisition prices when the number of bidders is exogenously fixed and large. However, when entry costs require bidders to optimize their participation decisions, club formation acts as an endogenous limit on competition and reduces the target's premium. In contrast, social efficiency with club bidding is always higher. Our findings can reconcile the contradictory evidence on club bidding.
Number of Pages in PDF File: 33
Keywords: Club bidding, Joint bidding, Mergers & Acquisitions, Takeover Auctions, Private equity
JEL Classification: G24, G34
Date posted: September 13, 2012
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