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The Economics of Club Bidding and Value Creation

33 Pages Posted: 13 Sep 2012  

Robert Marquez

University of California, Davis

Rajdeep Singh

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: August 15, 2012

Abstract

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

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

Robert S. Marquez

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

Rajdeep Singh (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1061 (Phone)
612-626-1335 (Fax)

HOME PAGE: http://umn.edu/~rajsingh

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