The Application Of Option Pricing Theory In Corporate Mergers And Acquisitions

Since the end of the 19th century ,M&A(Mergers&Acquisitions) has become the eternal topic of the capital market. Since represented by the United States of the Western countries raised companies M&A,the global market has experienced six times big wave of M&A.Global competition has come true. M&A is changing the pattern of the companies in China. Under the circumstance,this paper researched and analysed the companies M&A in China from a new perspective-option pricing theories.Option is a successful example as an innovation of financial derivatives market in the 20th century. It injected energy to the capital market. With the development of the option market, some studies on the option pricing are carrying out in full swing. The paper used the two famous option pricing models. They were:the Black-Scholes option pricing model and the binomal option pricing model. The paper analysed respectively three stages of companies M&A using the two models. The three stages were:the preparation phase before the M&A;M&A pricing phase and the evaluation phase after M&A.Every phase had a famous case, which made theory and practice combined.The paper came into five chapters. The first part introduced the overall situation and the purpose, research results of the option pricing theories in the application of companies M&A at home and abroad and research methods and structure. The second and third part discussed respectively the companies M&A and option pricing theories relating knowledge and theory in detail. The fourth part was the core and the most critical of the paper. It analysed emphatically why and how to use the option pricing theories in the different stages of the companies M&A: the preparation phase before the M&A;M&A pricing phase and the evaluation phase after M&A.The last part summed up the option pricing theories in the application of companies M&A and come up with some suggestions and prospects in the future.The paper used different research methods and structure. They are qualitative analysis and quantitative analysis;theory and case;reference and innovation. In the paper,there are both the theory contents of companies M&A and option pricing and the corresponding cases for explanation and argument;both research results of the domestic and foreign areas and new breakthrough and innovation.One of the innovation in the paper was the option pricing theory. It was applied to the evaluation phase after M&A.These knowledges were not read often in the domestic and foreign papers and works. After investigating related content on evaluation of M&A ,the paper used the option pricing model referred by Rubinstein in 1976 to assess the value of liabilities of companies. We could determine whether the M&A had reached the targets set before from the point of the value of liabilities .Another innovation of the paper was to cite a representative case after using option pricing theory to analyse every stages of the companies M&A.The paper cited an example on BaoSteel Group merging Yichang thin plate at the preparatory stage before M&A;cited another example on Shanghai Automotive Industry(Group) Corporation buying South Korea's SSANGYONG Motor shares at the M&A pricing stage. As to the evaluation phase after M&A,the paper cited an example on Huaneng Power International,Inc acquiring 55% shares of Qinbei Power Plant in Henan province;60% shares of Yushe Power Plant in Shanxi province and 100% shares of Xindian Power Plant in Shandong province.No matter in the field of financial economics or financial management,option pricing theory in the application of companies M&A is a new investigation subject. We believe that with the development of option pricing theories and more cases of M&A, the scope of option pricing theories in the application of companies M&A would certainly become more extensive and far-reaching.