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| Author: | Alvarez, L.H.R. Stenbacka, R. |
| Title: | Takeover timing, implementation uncertainty, and embedded divestment options |
| Journal: | Review of finance
2006 : VOL. 10:3, p. 417-441 |
| Index terms: | divestment options investments volatility models |
| Freeterms: | hostile takeovers |
| Language: | eng |
| Abstract: | This study presents a real options model determining the timing of takeovers (hereafter as: t-o./t-os.) and characterizing the distribution of the associated surplus. Delineated is a relation btw. the bargaining power of the acquiring firm and the t-o. incentives. The t-o. threshold is decreasing as a function of the expected primary t-o. gain and the embedded divestment (here as: divst.) gain. T-o. activity is stimulated by decreased implementation uncertainty which concerns the delay until either primary t-o. synergies or subsequent divst. gains are realized. It is shown how the relation btw. volatility and t-o. timing depends on the functional form of the profit flow with implementation uncertainty. |
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