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Strategic optimal premium on a merger and acquisition process a game theory approach
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From a perspective in which mergers and acquisitions can generate value through undervaluation, control, or synergies and taking into consideration that the form of payment, size of the acquirer, and type of target company (public or private) affect the amount of value created on an M&A process. It was possible to use a game theory negotiation model to understand the incentives, interactions, and strategic solutions on an M&A operation to find out the theoretical optimal strategic premium in any M&A process. From this theoretical model, it was found out that the empiric solution of the acquirer giving up almost all the value created by the transaction upon announcement is not optimal or even strategic. Acquirers theoretically should avoid giving up all the value in the transaction, as it exists an optimal strategic premium to share that is different to give up all value. It was also found that all cash transactions are not strategic and that acquirers should always pay in stock as much as they can in the operation to increase their benefits. As this is a theoretical model and the solution differs greatly from the empiric solution it has to be established that the model fails to fully explain the situation in hand. The lack of sufficient variables on the model makes it unable to properly assess the situation and generate a believable outcome. Therefore, the empiric solution remains as the optimal premium to be paid.
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Business and management Game theory Mergers and acquisitions Strategy Premium Nash equilibrium