The Research For Timing Of Proprietary M&A To Public Company

Because of uncertainty of future payoffs on M&A, irreversibility on costs and flexibility to put into practice, M&A has a characteristic of real options, which means there is an opportunity costs for immediate investment that is equal to the value of waiting to invest. So, the acquiring firm should ascertain an optimal timing of M&A, when can maximize the expected value of firms. It is thus evident that choosing an optimal timing of M&A has a critical effect on reducing M&A risks, maximizing the value of firms, and making a successful M&A.In view of the importance of timing of M&A strategies, referencing Thijssen (2006) studies, this article researches the timing of proprietary M&A and corresponded values of waiting to invest on optimal stopping theory in the conditions of two-stochastic and correlations from the acquiring's and the target's value by taking into account of synergies from two aspects on friendly merger and hostile acquisition. "Propeietary M&A" means that there is noly one acquiring firm preferring to the target, that is to say, we don't take competitive M&A into account.In the research for the timing of mergers, we concentrate on the effect of the rate of consideration on merging timing all along. Firstly, we study the problem of the timing of merger when the target acquiesces, which means the rate of consideration is only to meet the target's stockholders' participating constraints. From the study, we can find that the optimal timing of M&A is not related to the absolute value of each participant, but to the relative value of the two participants. In the friendly merger context, we use generalized Nash bargaining game model to solve the uniform rate of consideration, and find that the uniform rate of consideration is larger than that in the context of acquiescing. Furthermore, we solve the optimal timing of merger and corresponded values of waiting options with synergies hysteresis by referencing Weeds (2002) and Alvarez & Stenbacka (2006) for the expression on hazard rate that assume the time T for realizing synergies obeys negative exponential distribution with parameter h. Moreover, we solve the problem under incomplete information on the expected time for synergies realization by assume that the participants has incomplete information on the hazard rate h. At length, we make some illustrations to explain our conclusion. From the analysis, we find that the optimal timing of merger is not sooner than the time solved by traditional NPV approach, meanwhile, the merging firm is risk aversion for the expected time for realizing synergies, which means the shorter the expected time for realizing synergies needs or the larger the probability of the expected short time for realizing synergies, the sooner the optimal timing of merger may be.In the research for the timing of hostile acquisition, we make tender offers by stock for stock as context. We solve the optimal timing of hostile acquisition and corresponded values of waiting options by a model, which is constructed by synthetically taking into account of participants' stock price, anti-takeover by the target's manager, the acquiring's toehold, and the time needed for fulfilling successful acquisition. Then, we make some illustrations to explain our research, and from the factor analysis, it is indicated that more serious the stock dilution will be, the later the optimal timing of acquisitions may be. Meanwhile, we also find when the relative value of the participants is comparative little, the less toehold the better, on the contrary, when the relative value of the participants is comparative more, the more toehold the better, if the acquiring follow such principle, its optimal timing may be sooner and the probability of successful acquisition may be larger.