Negotiations Under the Threat of an Auction

40 Pages Posted: 21 Feb 2008 Last revised: 15 Dec 2010

See all articles by Nihat Aktas

Nihat Aktas

WHU - Otto Beisheim School of Management

Eric de Bodt


Richard Roll

California Institute of Technology

Date Written: January 14, 2009


Many takeovers occur after one-on-one negotiations, which suggests a troubling lack of competition. We seek to determine whether acquirers in such friendly deals are truly insulated from competitive pressures. We study two countervailing influences: (1) potential but unobserved latent competition, the likelihood that rival bidders could appear, and (2) anticipated auction costs when negotiations fail. Using various proxies, we find that latent competition increases the bid premium offered in negotiated deals while auction costs reduce the premium.

Keywords: Merger Negotiations, Latent Competition, Auction Costs, Bid Premium

JEL Classification: G30, G34

Suggested Citation

Aktas, Nihat and de Bodt, Eric and Roll, Richard W., Negotiations Under the Threat of an Auction (January 14, 2009). AFA 2009 San Francisco Meetings Paper, EFA 2009 Bergen Meetings Paper, Journal of Financial Economics (JFE), Vol. 98, pp. 241-245, 2010, Available at SSRN: or

Nihat Aktas (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
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Eric De Bodt

NHH-Caltech ( email )

Kraainem, 1950
+32 475 24 01 69 (Phone)

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
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