In this paper, a general model of strategic behavior of
(regulated and non-regulated) firms in M&A is presented.
For non-regulated firms, the model indicates that
targeted firms issue new debt strategically. In this
case, the firmís capital structure is chosen so that it
maximizes the (ex-ante) market value of the firm.
However, the focus of the paper is on regulated firms
(mostly monopolies). For these firms, the model shows
that managers, acting on behalf of shareholders, make
their strategic decisions on debt issuing and
investment, in anticipation of both the decisions of the
regulatory body and the responses of financial markets.
These decisions are aimed at influencing the probability
that an acquisition occurs as well as the price the
potential bidder will have to pay. However, such
decisions are also made with a view to influencing the
regulatory policies (maximum price or rate of return
permitted), thereby mitigating the probability that, in
the regulatory game, the regulator adopts an
opportunistic behavior.
