It Takes Two to Tango.. La fusion: exercice de deux options réelles

Moez Souissi and Pierre Lasserre

Economie & Prévision, 2007, vol. n° 178-179, issue 2, 51-65

Abstract: We analyze mergers from the standpoint of the merging firms. We show that the date of completion of a decentralized merger is suboptimal. The reason is that the merger is a simultaneous decision by two firms, and that its date is therefore determined by their strategic considerations. We model the merger as the simultaneous exercise of two real options and introduce two bargaining mechanisms for the division of the merger rent: the Stackelberg game and the Rubinstein game. In the first, which applies to hostile mergers, all the bargaining power rests with one firm. In the second, which is more suitable for assessing friendly mergers, neither firm has a negotiating advantage. In both cases, we show that the merger occurs at a date that is Pareto suboptimal because too delayed. This phenomenon is more pronounced in hostile mergers than in friendly mergers.

Keywords: friendly mergers; hostile mergers; real options; competition policy (search for similar items in EconPapers)
Date: 2007
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Journal Article: It Takes Two to Tango. La fusion: exercice de deux options réelles (2007)
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