Initiating contact in merger negotiations: Who leads and who follows?

Abstract

We examine the determinants of the managers’ choice of negotiating procedure when firms merge. We use company filings with the Securities and Exchange Commission (SEC) to identify the merging firms’ negotiating procedure and their underlying operating, marketing, and financial motivations for pursing the deal. When target-firm managers cite technological expertise and access to capital as reasons for the merger, we find that they are less likely to use an auction as the sales procedure. Acquiring-firm managers are less likely to initiate the process when they cite technological expertise as a reason for the merger.