Journal of Risk

Risk.net

Mergers and acquisitions: collar contracts

An Chen and Christian Hilpert

Abstract

Collar offers and walking-away rights have become popular tools in mergers and acquisitions (M&A) transactions. In this paper, we price fixed-price collars and fixed ratio collars and evaluate the commonly included right to terminate the M&A transaction before the closing date. We show that the right to walk away from the M&A deal can increase the value of the deal substantially. Collar offers are usually more beneficial to the target company's investors with a constant relative risk aversion utility function than the traditional all-cash payment and stock-for-stock payment of the transaction. In our model, terminating the deal before the closing date usually increases the expected utility of target investors.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here