TY  - JOUR
AU  - Gorton,Gary
AU  - Kahl,Matthias
AU  - Rosen,Richard
TI  - Eat or Be Eaten: A Theory of Mergers and Merger Waves
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11364
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11364
L1  - http://www.nber.org/papers/w11364.pdf
N1  - Author contact info:
Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu

Matthias Kahl
Leeds School of Business
University of Colorado at Boulder
UCB 419
Boulder, CO 80309-0419
Tel: 303/4920141
E-Mail: matthias.kahl@colorado.edu

Richard Rosen
AB  - In this paper, we present a model of defensive mergers and merger waves. We argue that mergers and merger waves can occur when managers prefer that their firms remain independent rather than be acquired. We assume that managers can reduce their chance of being acquired by acquiring another firm and hence increasing the size of their own firm. We show that if managers value private benefits of control sufficiently, they may engage in unprofitable defensive acquisitions. A technological or regulatory change that makes acquisitions profitable in some future states of the world can induce a preemptive wave of unprofitable, defensive acquisitions. The timing of mergers, the identity of acquirers and targets, and the profitability of acquisitions depend on the size of the private benefits of control, managerial equity ownership, the likelihood of a regime shift that makes some mergers profitable, and the distribution of firm sizes within an industry.
ER  -