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Strategy - Mergers & Acquisitions


Financial Strategies in Mergers and Acquisitions (M&A): The Case of Regulated Firms  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.

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Status: 04. April 2013