M&A strategy of double-acquirers based on option game under dynamic competition

Based on the practice that the value-enhancing and cost of merger and acquisition between competitive acquirers are different, this paper build an asymmetric competitive option game model covering bids and timing of M&A, and solves the possible competitive equilibrium results and the optimal bidding and timing under equilibrium. Then we verify the accuracy of the conclusion by numerical analysis. This study finds that competition improves the merger offer of acquirer and decreases option value. That makes the timing of merger not being determined by real option threshold of merger any more, but by Marshall threshold of merger, which lead to earlier occurrence of M&A. The proportion of value-enhancing from merger and the cost of merger co-determine the equilibrium outcome of asymmetric competition merger. When the random shock is large enough, the acquirer with higher proportion of value-enhancing could always able to win in the competition. When the random shock is large enough, the acquirer with higher proportion of value-enhancing could always able to win in the competition. Whereas, if the cost of the acquirer with lower proportion of value-enhancing is small enough, there are some interval of random shocks, which makes this acquirer win in the competition.