Efficient Mechanisms for Mergers and Acquisitions

41 Pages Posted: 17 Jul 2007

See all articles by Sandro Brusco

Sandro Brusco

SUNY at Stony Brook University, College of Arts and Science, Department of Economics

S. Viswanathan

Duke University - Fuqua School of Business; Duke University - Department of Economics

Giuseppe Lopomo

Fuqua School - Duke University; Duke University - Department of Economics

Abstract

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 non-merging 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.

Suggested Citation

Brusco, Sandro and Viswanathan, S. and Lopomo, Giuseppe, Efficient Mechanisms for Mergers and Acquisitions. International Economic Review, Vol. 48, No. 3, pp. 995-1035, August 2007. Available at SSRN: https://ssrn.com/abstract=1000517 or http://dx.doi.org/10.1111/j.1468-2354.2007.00452.x

Sandro Brusco (Contact Author)

SUNY at Stony Brook University, College of Arts and Science, Department of Economics ( email )

Stony Brook, NY 11794
United States

S. Viswanathan

Duke University - Fuqua School of Business ( email )

Durham, NC 27708-0120
United States
919-660-7784 (Phone)
919-684-2818 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Giuseppe Lopomo

Fuqua School - Duke University ( email )

Box 90097
Durham, NC 27708-0097
United States
(919) 660-7820 (Phone)
(919) 660-7971 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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