Acquisitions, Common Ownership, and the Cournot Merger Paradox

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Diversified acquirer shareholders can profit from value-destroying acquisitions not only due to their target stakes, but mostly from their stakes in non-merging rival firms. Theoretically we show that the ?Cournot Merger Paradox? still applies under such common ownership, that is, all the gains from a merger are captured by non-merging rivals in the same industry. Our model predicts a negative relation between common ownership and the level of synergy required for a merger. Empirically we find that in value-destroying acquisitions, announcement losses from acquirer stakes are largely mitigated, with 30% of sample acquirer shareholders netting a gain after accounting for target and rival ownership. Moreover, synergies required to merge are indeed lower with higher common ownership. These results help explain why value-destroying acquisitions might get approved and how a high-common ownership environment is correlated with higher M&A frequency.
Bibliographic citation: Antón, Miguel; Azar, José; Giné, Mireia; Xianran Lin, Luca, "Acquisitions, Common Ownership, and the Cournot Merger Paradox", Social Science Research Network, 01/2019

Reference: 10.2139/ssrn.3226390 (DOI)
Date: 18/01/2019
Author(s): Antón, Miguel; Azar, José; Giné, Mireia; Xianran Lin, Luca
Document type: Working Paper
Languages: English