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Toehold

Author

Listed:
  • Jean M. Canil
  • Bruce A. Rosser

    (University of Adelaide)

Abstract

We examine risk-adjusted returns in association with (i) bids coinciding with toehold acquisitions and (ii) bids that are deferred past the toehold acquisition date. When a bidder is uncertain about the merged value of the target company, buying a toehold and deferring a bid can be more beneficial than immediately proceeding to full control. For target firms, abnormal returns around toehold acquisitions are found to anticipate deferred bids, irrespective of the status of rival bidders. Bidders experience zero abnormal returns around toehold announcements irrespective of the status of rivals, as expected. A new finding is that bidder returns average negative (-5.3%) around bid announcements, and are traced to a sub-sample of bidders who defeered their bids and bid at a price below that paid for their toehold. The negative return is interpreted as market correction of the value attributed to earlier toehold acquisitions when there was less information about the merged value of target companies.

Suggested Citation

  • Jean M. Canil & Bruce A. Rosser, 2004. "Toehold," The African Finance Journal, Africagrowth Institute, vol. 6(1), pages 37-55.
    • Handle: RePEc:afj:journl:v:6:y:2004:i:1:p:37-55
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    Cited by:

    1. Stimmelmayr, Michael & Liberini, Federica & Russo, Antonio, 2015. "The Role of Toeholds and Capital Gain Taxes for Corporate Acquisition Strategies," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112926, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Toeholds; Bids; Substantial Shareholdings; Takeovers;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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