Takeover Duration and Negotiation Process

We study the determinants of the takeover processes duration. In our model, we focus on bidder initiated, one-to-one negotiations. An initial bidder submits an offer to the target. The target either accepts, and the transaction is completed, or rejects. The bidder has then the choice between going away or continuing the negotiation. As time goes on, the bidder and the target learn about true synergies thanks to the negotiation process. But rival bidders can show up and compete to acquire the target. Using a discrete time finite horizon dynamic programming approach, we study the equilibrium relations between the negotiation duration, pressure of potential competition and the learning process. We turn next to a calibration exercise based on a large sample of merger negotiations, collecting initiation and negotiation duration in SEC filings. We parallel the simulated method of moments to match the frequency distribution of private negotiation duration. Our results suggest that the M&A market is much more competitive than previously thought