Hostile Takeovers or Friendly Mergers?: A Real Options Analysis

34 Pages Posted: 14 Aug 2019 Last revised: 16 Apr 2020

See all articles by Takeshi Ebina

Takeshi Ebina

Meiji University - School of Commerce

Yuya Kumakura

Hamagin Research Institute, Ltd.

Katsumasa Nishide

Graduate School of Economics, Hitotsubashi University

Date Written: April 11, 2020

Abstract

This study analyzes a real options model of mergers and takeovers between two firms facing different but correlated uncertainty in profits. It is assumed that firms can choose two alternatives; hostile takeover or friendly merger. In a hostile takeover, a bidder firm takes all the extra value but incurs takeover costs, while in a friendly merger, both firms do not bear takeover costs but share the extra value through Nash bargaining. We show how demand uncertainty and takeover costs influence which firm is more likely to act as a bidder and which form of amalgamation will emerge. We also find that a smaller firm can be a bidder to a larger firm in a hostile manner, which is occasionally observed in actual markets.

Keywords: Merger and acquisition, Real option, Nash bargaining

JEL Classification: C61, G32, G34

Suggested Citation

Ebina, Takeshi and Kumakura, Yuya and Nishide, Katsumasa, Hostile Takeovers or Friendly Mergers?: A Real Options Analysis (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3435335 or http://dx.doi.org/10.2139/ssrn.3435335

Takeshi Ebina

Meiji University - School of Commerce ( email )

1-1 Kanda-Surugadai
Chiyoda-ku
Tokyo
Japan

Yuya Kumakura

Hamagin Research Institute, Ltd. ( email )

Katsumasa Nishide (Contact Author)

Graduate School of Economics, Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

HOME PAGE: http://www1.econ.hit-u.ac.jp/nishide/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
127
Abstract Views
595
rank
263,844
PlumX Metrics