I analyzed optimal schemes for privatization of state-owned enterprises using two-tier auction. Two independent forces, the expected synergy generated and private benefits obtained by the acquirer, affect the bidder’s bids and bid-taker’s revenue. Moreover, the government has to be concerned about the auction approach it adopts since it will affect the expected revenue. In this paper, based on game theory literature and microeconomic theory, I showed the two-tier auction dominates one-stage auction under a certain condition. Besides, to announce how many initial shares bidders should buy affects the bidders’ bid and the profit allocation between the bidder and the bid-taker. In order to obtain maximum expected return, the government should make the determination on a case by case basis and some implications of results in this paper can explain some cases of privatization around the world.