The Information Content of Corporate Merger and Acquisition Offers

Abstract

This paper explores the implications for the information content of acquisition offers in an economy with asymmetric information. It is shown that mergers can be socially beneficial due to risk reduction and information asymmetry even when there are no productive synergies and when positive premia are paid. The properties of equilibria with and without mergers are derived and contrasted in order to obtain a quantitative bound on potential merger premia. Theory is related to empirical evidence, where our results show that aggregate valuation gains can accrue on a purely informational basis. Moreover, the model developed here has important implications for the reported differences in tender offer and merger studies.

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