Abstract
As a contribution to the literature on how firms should be sold, our analysis helps to shed light on size and distribution of synergies in formal auctions versus informal sales. We use insiders' views revealed through trading in their firms' stock to evaluate impact of buying firms through fully competitive formal auctions versus informal sales that involve more space for negotiations. Acquirer insiders are positive (sell less) about informal sales, while they are not positive about formal auctions. Insiders' positive view of informal sales is strengthened in dynamically changing industries with potential for higher synergies and in stock deals. Together with higher average takeover premium in informal sales, we suggest that overall value created (synergy) is larger in informal sales and both sellers and buyers share the surplus. Formal auctions seem to be optimal for sellers to extract large fraction of synergy when size of the overall pie is smaller.
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