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A Dynamic Model of Mergers and Acquisitions : Optimal Payment Methods

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Title: A Dynamic Model of Mergers and Acquisitions : Optimal Payment Methods
Other Titles: 企業買収合併における最適支払戦略の動学モデル
Authors: 陳, 雯君1 Browse this author
Authors(alt): CHEN, Wenjun1
陳, ブン君1
Issue Date: 22-Mar-2018
Abstract: This dissertation develops dynamic models of joint takeovers to determine the optimal payment strategy and the optimal timing to acquire a target firm. We first establish a pure cash-payment model, which the bidder pays in cash to buy all the shares of the target firm. And then we extend the pure cash-payment model into three models using different payment strategies: a cash-share mixed-payment model, an expand-sell model, and a debt-share mixed-payment model. In a cash-share mixed-payment model, the bidder and the target firm exchange parts of their share and the bidder also pays a cash premium payment to the target to gain high post-merger management control. The model relates the acquisition premium payment and the merger threshold to the growth rate, volatility, and correlation coefficient of the bidder and target. The result indicates the mixed-payment method will outperform the pure cash-payment method when the growth rate of the bidder is high, the businesses of the participating firms are low risky or the correlation coefficient of the participating company is low because of the diversification of the business of the two companies. An expand-sell model considers an expansion offer that is motivated by the synergy gains and a contraction offer that is prompted by efficiency liquidation. The bidder can choose an expansion strategy to acquire the target when their market value increases, and determine a contraction strategy to sell the asset to the target when their market value decreases. The result indicates that the bidder prefers to expand their business when the growth rate of bidder’s business is high and to sell their asset when the growth rate of the opposite firm is high. The expansion process is longer than the contraction process when the participating companies are highly risky. A debt-share mixed-payment model extends the pure cash-payment which is also considered as the equity finance takeover to the debt finance takeover, which assumes that the bidder issues a revenue bond. The results indicate that the takeover execution speed of the debt finance model is faster than which of the equity finance model when the participating firms are highly risky. The three main contributions of this study are as follows. First, we compare each method with the pure cash-payment method to find the relationship between the participating firm’s business condition and the payment method decision. Second, we analyses the terms, assuming that the bidder and target will negotiate the terms of the merged enterprise, which we solve via a Nash barging solution (Nash [61]). Finally, we assume that both the bidder and target will probably mis-estimate the synergy generated, and that the managers of both firms can take advantage of this. The dissertation analyses the abnormal returns from the announcement.
Conffering University: 北海道大学
Degree Report Number: 甲第12974号
Degree Level: 博士
Degree Discipline: 経営学
Examination Committee Members: (主査) 教授 石井 利昌, 准教授 後藤 允, 教授 辻村 元男 (同志社大学)
Degree Affiliation: 経済学研究科(現代経済経営専攻)
Type: theses (doctoral)
Appears in Collections:課程博士 (Doctorate by way of Advanced Course) > 経済学院(Graduate School of Economics and Business)
学位論文 (Theses) > 博士 (経営学)

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