The Timing of Takeovers in Growing and Declining Markets

43 Pages Posted: 10 Feb 2010

See all articles by Robin A. Mason

Robin A. Mason

University of Southampton - Division of Economics; Centre for Economic Policy Research (CEPR)

Helen Weeds

affiliation not provided to SSRN

Date Written: February 2010

Abstract

Empirical studies have found that takeover activity is positively related to the absolute size of industry-level shocks. In this paper we develop a dynamic framework to analyze the timing of takeover which explains this pattern. Takeover may create value either by exploiting synergies or through fixed cost savings, the relative value of each approach being affected by shocks to an industry variable. With competing acquirers of different types, takeover occurs only when shocks are sufficiently large in either direction, with no activity taking place in between. We model both hostile takeover, for which the timing and terms are determined by competing bidders, and agreed takeover, where the target chooses when to open negotiations with one of the acquirers. We examine implications of our analysis for the efficiency of the market for corporate control, finding that the direction of inefficiency depends on the form of takeover. We also analyze the dependence of takeover activity on the degree of uncertainty about industry conditions.

Keywords: Acquisitions, Mergers, Real options, Takeovers, Timing games

JEL Classification: D44, D81, G34

Suggested Citation

Mason, Robin and Weeds, Helen F., The Timing of Takeovers in Growing and Declining Markets (February 2010). CEPR Discussion Paper No. DP7678. Available at SSRN: https://ssrn.com/abstract=1550590

Robin Mason (Contact Author)

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3268 (Phone)
+44 23 8059 3858 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Helen F. Weeds

affiliation not provided to SSRN

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