Means of Payment and Timing of Mergers and Acquisitions in a Dynamic Economy
Alexander S. Gorbenko
London Business School
MIT Sloan School of Management
January 29, 2014
We study the interplay between bidders’ equilibrium timing of acquisitions, means of payment (cash versus stock), and takeover premiums when bidders are cash-constrained. Because of ability to bid in stock, constraints have no effect on bidders' maximum willingness to pay. However, both own and rivals’ constraints usually make a bidder more reluctant to initiate a bid. The effect of own constraints is opposite for high-growth high-synergy targets. Both fundamentals and cash constraints drive acquisition activity. Positive- but low-synergy targets are either never acquired or acquired after they have grown and using stock, while the opposite is true for high-synergy targets.
Number of Pages in PDF File: 66
Keywords: Auctions, financial constraints, mergers and acquisitions, real options, security design
JEL Classification: D44, G32, G34
Date posted: February 18, 2013 ; Last revised: January 30, 2014
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