Optimal Sequential Selling Mechanism and Deal Protections in Mergers and Acquisitions

We study the dynamic profit-maximizing selling mechanism in a merger and acquisitions (M&A) environment with costly bidder entry and without entry fees. Depending on the parameters, the optimal mechanism is implemented by a standard auction or by a two-stage procedure with exclusive offers to one bidder followed by an auction potentially favoring that bidder. The optimal mechanism may involve common deal protections like termination fees, asset lockups, or stock option lockups. Our proposed procedures resemble sales of targets filing Chapter 11 bankruptcy or M&A involving public targets, and they shed light on how to use deal protections in practice.

This is the peer reviewed version of the following article: [Optimal Sequential Selling Mechanism and Deal Protections in Mergers and Acquisitions. The Journal of Finance 78, 4 p2139-2188 (2023)], which has been published in final form at https://doi.org/10.1111/jofi.13235. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions: https://authorservices.wiley.com/author-resources/Journal-Authors/licensing/self-archiving.html#3.