33 Pages Posted: 13 Sep 2012
Date Written: August 15, 2012
Many acquisitions are conducted by clubs, i.e., coalitions of acquirers that submit a single bid. We present a novel analysis of club bidding where the club creates value by aggregating, at least partially, bidders' values. We show that club formation can lead to higher acquisition prices when the number of bidders is exogenously fixed and large. However, when entry costs require bidders to optimize their participation decisions, club formation acts as an endogenous limit on competition and reduces the target's premium. In contrast, social efficiency with club bidding is always higher. Our findings can reconcile the contradictory evidence on club bidding.
Keywords: Club bidding, Joint bidding, Mergers & Acquisitions, Takeover Auctions, Private equity
JEL Classification: G24, G34
Suggested Citation: Suggested Citation
Marquez, Robert and Singh, Rajdeep, The Economics of Club Bidding and Value Creation (August 15, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2145629