An Investigation of Bargaining Power in Mergers and Acquisitions
Abstract: In this paper we seek to investigate factors influencing the bargaining position within merger negotiations. We take a step back from agency theory and explore the source of bargaining power rather than the management's bargaining performance. In doing so, we focus mainly on two factors: the product market interactions between acquirer and target, and the method of payment for the deal. First, we consider the effect of business interdependencies in non-horizontal mergers when targets and acquirers are interdependent on each other as suppliers and customers. Second, we study horizontal mergers where powerful acquirers can leverage on their pricing strength to negotiate a better deal. Third, we analyse the effect the method of payment has within the context of bargaining power. Acknowledging the market signalling effect of cash we extend current theories by hypothesising that using cash as method of payment for the deal provides acquirers with bargaining leverage and enables them to negotiate a more favourable premium on the deal.
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