The Timing of Agreement Mergers under Incomplete Information of Hazard Rate

Taking the rate of consideration, synergies uncertainty and incomplete information on hazard rate into account, this paper establishes a "three-phase" model about the timing of agreement mergers and solves the optimal merging time and consideration rate on equilibrium under incomplete information by adopting dynamic programming and real options methods. Then, make an illustration to explain our research, it is indicated that the optimal timing of mergers is only related to the relative shocks of the two participants, and is not relevant to the bargain power. Meanwhile, the optimal timing of merger is later than the time solved by traditional NPV approach, and is positive correlative to the expected merger payoff, which implies that an overconfident acquiring is more likely to overinvest.