Mergers and Acquisitions with Conditional and Unconditional Offers

29 Pages Posted: 6 Feb 2019

See all articles by Armando R. Gomes

Armando R. Gomes

Washington University in St. Louis - John M. Olin Business School; Washington University in Saint Louis - John M. Olin Business School

Wilfredo Maldonado

Federal University of Goias

Date Written: January 21, 2019

Abstract

This paper proposes a dynamic model for the process of industry consolidation by sequences of mergers and acquisitions that create synergy gains to merging firms and may impose positive or negative externalities on the remaining firms in the industry. We allow firms to make acquisition offers that are conditional and unconditional to acceptances of target firms, instead of the usual conditional offers. We show that this minimum expansion allowing a more flexible offer set results in faster and more economically efficient industry consolidations, as acquirers do not have to trade-off surplus extraction and efficiency. The acquirer can make surplus maximizing mergers offers conditional to acceptances, and simultaneously capture efficiency gains by making unconditional offers to the remaining firms, leading to a faster industry consolidation process. We characterize the Markov perfect equilibrium of the mergers and acquisitions game and show that equilibrium always exists and is Pareto efficient. Finally, to illustrate the model and our main findings, we show that the equilibrium is unique in industries with three firms, and we derive the closed-form solution for the equilibrium value and the merger dynamics.

Keywords: mergers and acquisitions, multilateral negotiations, coalitional bargaining, industry consolidations

JEL Classification: C71, C72, C78, D62, G34

Suggested Citation

Gomes, Armando R. and Gomes, Armando R. and Maldonado, Wilfredo, Mergers and Acquisitions with Conditional and Unconditional Offers (January 21, 2019). Available at SSRN: https://ssrn.com/abstract=3326082 or http://dx.doi.org/10.2139/ssrn.3326082

Armando R. Gomes (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

Wilfredo Maldonado

Federal University of Goias ( email )

Campus Samambaia
CEP 74001-970, Goiânia
Goiás
Brazil

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