Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95030
Authors: 
Fridolfsson, Sven-Olof
Stennek, Johan
Year of Publication: 
1999
Series/Report no.: 
IUI Working Paper 511
Abstract: 
We demonstrate a 'preemptive merger mechanism' which may explain the empirical puzzle why mergers reduce profits, and raise share prices. A merger may confer strong negative externalilties on the firms outside the merger. If being an 'insider' is better than being an 'outsider', firms may merge to preempt their partner merging with someone else. Furthermore, the pre-merger value of a merging firm is low, since it reflects the risk of becoming an outsider. These results are derived in a model of endogenous mergers which predicts the conditions under which a merger occurs, when it occurs, and how the surplus is divided.
Subjects: 
Mergers & acquisitions
definsive merger
coalition formation
antitrust policy
JEL: 
C78
G34
L13
Document Type: 
Working Paper

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