A Research On The Application Of Real Option In The Merger Of Internet Companies

As we are in 21 century,the way of entertaining and consuming of people is changing with the development of information technology,and the internet indusdry has a great opportunity.While the internet indusddry developing fast,mergers and acquisitions are happening.Due to the internet companies are living on high tech,they are different from traditional companies in capital structure and business model.when we have a problem of valuating the target company,the traditional valuation methods will show their limitations.Under this background,people start to look for an appropriate valuation method for internet companies,and real option method has come into our sight.Real option method considers the valuation of potential profit opportunities and management flexibility,and it can solove the problem of high uncertainty.First,this article elaborates the background of the question,introduces the research ideas,frame and method,reviews the literature in dimensions of motives,risk,performance,and real option theory,and real option application,then analysises the traditional valuation methods and real option method in theory.Basing on the above,this article raises three propositions:1.the real option of potential profit opportunity is an important apartment of internet company’s valuation,2.traditional valuation methods don’t cover the real option valuation of internet companies,3.the real option method can valuate the potential profit opportunity of internet companies,at last,according to the case of Baidu merging 91 wireless,valuating the target company in methods of DCF and real option,analysising the results to prove the propositions.