Optimal Sequential Selling Mechanism and Deal Protections in Mergers and Acquisitions

Yi Chen, Zhe Wang

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


We study the dynamic profit-maximizing selling mechanism in a merger and acquisitions (M&A) environment with costly bidder entry and without entry fees. Depending on the parameters, the optimal mechanism is implemented by a standard auction or by a two-stage procedure with exclusive offers to one bidder followed by an auction potentially favoring that bidder. The optimal mechanism may involve common deal protections like termination fees, asset lockups, or stock option lockups. Our proposed procedures resemble sales of targets filing Chapter 11 bankruptcy or M&A involving public targets, and they shed light on how to use deal protections in practice.

Original languageEnglish (US)
Pages (from-to)2139-2188
Number of pages50
JournalJournal of Finance
Issue number4
StatePublished - Aug 2023

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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