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Means of Payment and Timing of Mergers and Acquisitions in a Dynamic Economy

Alexander S. Gorbenko

London Business School

Andrey Malenko

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

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Date posted: February 18, 2013 ; Last revised: January 30, 2014

Suggested Citation

Gorbenko, Alexander S. and Malenko, Andrey, Means of Payment and Timing of Mergers and Acquisitions in a Dynamic Economy (January 29, 2014). Available at SSRN: http://ssrn.com/abstract=2220006 or http://dx.doi.org/10.2139/ssrn.2220006

Contact Information

Alexander S. Gorbenko
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 0 7966908276 (Phone)
HOME PAGE: http://www.stanford.edu/~gorbenko
Andrey Malenko (Contact Author)
MIT Sloan School of Management ( email )
100 Main Street
Cambridge, MA 02142
United States
617-225-9301 (Phone)
HOME PAGE: http://www.mit.edu/~amalenko
Feedback to SSRN

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References:  31
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