Takeover Duration and Negotiation Process

57 Pages Posted: 3 Apr 2017 Last revised: 1 Jun 2018

See all articles by Riccardo Calcagno

Riccardo Calcagno

Politecnico di Torino

Eric de Bodt

NHH-Caltech

Irina Demidova

École des sciences de la gestion - Université du Québec à Montréal

Date Written: May 27, 2018

Abstract

We study the determinants of the takeover processes duration. In our model, we focus on bidder initiated, one-to-one negotiations. An initial bidder submits an offer to the target. The target either accepts, and the transaction is completed, or rejects. The bidder has then the choice between going away or continuing the negotiation. As time goes on, the bidder and the target learn about true synergies thanks to the negotiation process. But rival bidders can show up and compete to acquire the target. Using a discrete time finite horizon dynamic programming approach, we study the equilibrium relations between the negotiation duration, pressure of potential competition and the learning process. We turn next to a calibration exercise based on a large sample of merger negotiations, collecting initiation and negotiation duration in SEC filings. We parallel the simulated method of moments to match the frequency distribution of private negotiation duration. Our results suggest that the M&A market is much more competitive than previously thought.

Keywords: Mergers Negotiations, Negotiation Duration, Potential Competition

JEL Classification: G34, C51, C78

Suggested Citation

Calcagno, Riccardo and de Bodt, Eric and Demidova, Irina, Takeover Duration and Negotiation Process (May 27, 2018). Available at SSRN: https://ssrn.com/abstract=2944923 or http://dx.doi.org/10.2139/ssrn.2944923

Riccardo Calcagno

Politecnico di Torino ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy

Eric De Bodt (Contact Author)

NHH-Caltech ( email )

18B AVENUE BECHET
Kraainem, 1950
Belgium
+32 475 24 01 69 (Phone)

Irina Demidova

École des sciences de la gestion - Université du Québec à Montréal ( email )

315, rue Sainte-Catherine Est
Montréal, CA Québec H2X 3X2
Canada

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