TY - JOUR
T1 - The economics of club bidding and value creation
AU - Marquez, Robert
AU - Singh, Rajdeep
PY - 2013/5/1
Y1 - 2013/5/1
N2 - Many acquisitions are conducted by clubs, i.e., coalitions of acquirers that submit a single bid. We present a novel analysis of club bidding where the club creates value by aggregating, at least partially, bidders' values. We show that club formation can lead to higher acquisition prices when the number of bidders is exogenously fixed and large. However, when entry costs require bidders to optimize their participation decisions, club formation acts as an endogenous limit on competition and reduces the target's premium. In contrast, social efficiency with club bidding is always higher. Our findings can reconcile the contradictory evidence on club bidding.
AB - Many acquisitions are conducted by clubs, i.e., coalitions of acquirers that submit a single bid. We present a novel analysis of club bidding where the club creates value by aggregating, at least partially, bidders' values. We show that club formation can lead to higher acquisition prices when the number of bidders is exogenously fixed and large. However, when entry costs require bidders to optimize their participation decisions, club formation acts as an endogenous limit on competition and reduces the target's premium. In contrast, social efficiency with club bidding is always higher. Our findings can reconcile the contradictory evidence on club bidding.
KW - Club bidding
KW - Joint bidding
KW - Mergers and acquisitions
KW - Private equity
KW - Takeover auctions
UR - http://www.scopus.com/inward/record.url?scp=84876341184&partnerID=8YFLogxK
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U2 - 10.1016/j.jfineco.2012.12.001
DO - 10.1016/j.jfineco.2012.12.001
M3 - Article
AN - SCOPUS:84876341184
SN - 0304-405X
VL - 108
SP - 493
EP - 505
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -