Screening and Merger Activity

24 Pages Posted: 30 Dec 2010

See all articles by Albert Banal-Estañol

Albert Banal-Estañol

City University London - Department of Economics; Universitat Pompeu Fabra - Department of Economics and Business (DEB)

Paul Heidhues

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Rainer Nitsche

affiliation not provided to SSRN

Jo Seldeslachts

KU Leuven - Faculty of Business and Economics (FEB); German Institute for Economic Research (DIW Berlin)

Date Written: December 24, 2010

Abstract

In our paper, the target of a proposed merger, by setting a reserve price, is able to screen prospective acquirers according to their (expected) ability to generate merger-specific synergies. Both empirical evidence and many merger models suggest that the difference between high and low-synergy mergers becomes smaller during booms. Thus, a target's opportunity cost for sorting out relatively less fitting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.

Keywords: Takeovers, Merger Waves, Defense Tactics, Screening

JEL Classification: D21, D80, L11

Suggested Citation

Banal Estañol, Albert and Banal Estañol, Albert and Heidhues, Paul and Nitsche, Rainer and Seldeslachts, Jo, Screening and Merger Activity (December 24, 2010). The Journal of Industrial Economics, Vol. 58, Issue 4, pp. 794-817, 2010, Available at SSRN: https://ssrn.com/abstract=1732397 or http://dx.doi.org/10.1111/j.1467-6451.2010.00438.x

Albert Banal Estañol (Contact Author)

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Universitat Pompeu Fabra - Department of Economics and Business (DEB) ( email )

Barcelona, 08005
Spain

Paul Heidhues

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Rainer Nitsche

affiliation not provided to SSRN ( email )

Jo Seldeslachts

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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