Volume 5 (2017) Pages 1-35
This paper develops a dynamic model of a joint takeover to determine the timing, acquisition premiums, and terms. The model incorporates imperfect information and the strategy by solving a Markov perfect Nash equilibrium. The results predict that the acquirer will make a high cash payment to the target to gain high post-merger management control. The abnormal return to the participating firm can be positive or negative due to asymmetric information. In addition, the model relates the acquisition premium payment and the merger threshold to the growth rate, volatility, and correlation coefficient of the acquirer and target.