Séminaire GREDEG - Riccardo Calcagno (EMLYON Business School)

"Takeover Duration and Negotiation Process"

14-09-2017 GREDEG - Salle Picasso
Publication : 14-09-2017
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Séminaire GREDEG - Riccardo Calcagno (EMLYON Business School)

Titre : "Takeover Duration and Negotiation Process" en coll. avec Eric de Bodty & Irina Demidovaz

Abstract: We study the determinants of the takeover processes duration. Risk averse bidders submit bids to targets. Targets either accept, and the transaction is completed, or negotiate one more period. As time goes on, bidders and targets learn about true synergies thanks to the due diligence process. But rival bidders can show up and compete to acquire targets, a desirable event from targets point of view, but costly for bidders. Using a discrete time nite horizon dynamic programming approach, our simulations characterize the relation between negotiation duration, pressure of potential competition and the learning process. Our empirical exercise is based on a large sample of merger negotiations identified through the manual examination of SEC filings. We use the simulated method of moments to match the frequency distribution of private negotiation duration in a calibration exercise. Our results show that a 10% ex-ante probability of new bidders entering in the M&A process each month is consistent with the data.