DEA-based pre-merger planning tool

S Lozano () and G Villa
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S Lozano: Universidad de Sevilla
G Villa: Universidad de Sevilla

Journal of the Operational Research Society, 2010, vol. 61, issue 10, 1485-1497

Abstract: Abstract Data envelopment analysis (DEA) can be used as a pre-merger planning tool to estimate expected cost and profit efficiency gains. Specifically, in this paper, two alternative DEA models are presented, one to minimize post-merger input cost and the other to maximize post-merger profit. The first model assumes that input prices are known, whereas the second assumes that output prices are known. As both models explicitly consider the possibility of closing existing units, they are especially apt for in-market horizontal mergers, in which considerable overlap may exist among the branches of the merging firms. Indicative efficiency ratios are proposed based on the results of the models. The proposed approach is, in addition, rather flexible, allowing the optional inclusion of a variety of features and constraints, such as incompatibility among units, employment guarantees, etc.

Keywords: mergers and acquisitions; efficiency gains; pre-merger planning; data envelopment analysis; branch closures (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (16)

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DOI: 10.1057/jors.2009.106

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