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Preemptive Bidding and the Role of the Medium of Exchange in Acquisitions

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Author Info
 Fishman, Michael J
Abstract

The medium of exchange in acquisitions is studied in a model where (1) bidders' offers bring forth potential competition and (2) targets and bidders are asymmetrically informed. In equilibrium, both securities and cash offers are observed. Securities have the advantage of inducing target management to make an efficient accept/reject decision. Cash has the advantage that, in equilibrium, it serves to "preempt" competition by signaling a high valuation for the target. Implications concerning the medium of exchange of an offer, the probability of acceptance, the probability of competing bids, expected profits, and the costs of bidders are derived. Copyright 1989 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 44 (1989)
Issue (Month): 1 (March)
Pages: 41-57
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Handle: RePEc:bla:jfinan:v:44:y:1989:i:1:p:41-57

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  1. Sanjai Bhagat & Ming Dong & David A. Hirshleifer & Robert B. Noah, 2004. "Do Tender Offers Create Value? New Methods and Evidence," Finance 0412011, EconWPA. [Downloadable!]
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  2. Bulow, Jeremy I. & Klemperer, Paul D., 2007. "When Are Auctions Best?," Research Papers 1973, Stanford University, Graduate School of Business. [Downloadable!]
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  3. Robert L Conn & Andy Cosh & Paul M Guest & Alan Hughes, 2003. "The Impact on U.K. Acquirers of Domestic, Cross-border, Public and Private Acquisitions," ESRC Centre for Business Research - Working Papers wp276, ESRC Centre for Business Research. [Downloadable!]
  4. Jost, Peter J. & Kräkel, Matthias, 2000. "Preemptive Behavior in Sequential Tournaments," IZA Discussion Papers 159, Institute for the Study of Labor (IZA). [Downloadable!]
  5. David Hirshleifer, 1989. "Facilitation of Competing Bids and the Price of a Takeover Target," University of California at Los Angeles, Anderson Graduate School of Management 1193, Anderson Graduate School of Management, UCLA. [Downloadable!]
  6. Edward F. Pierzak, 2001. "Payment Choice in REIT Property Acquisitions," Journal of Real Estate Research, American Real Estate Society, vol. 21(1/2), pages 105-140. [Downloadable!]
  7. Abhay Abhyankar & Keng-Yu Ho & Huainan Zhao, 2005. "Long-run post-merger stock performance of UK acquiring firms: a stochastic dominance perspective," Applied Financial Economics, Taylor and Francis Journals, vol. 15(10), pages 679-690, June. [Downloadable!] (restricted)
  8. Betton, Sandra & Eckbo, B Espen & Thorburn, Karin S, 2005. "The Toehold Puzzle," CEPR Discussion Papers 5084, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Hiroshi Osano, 2001. "Stock Options and Employees' Firm-Specific Human Capital under the Threat of Divesture and Aquisition," Working Papers 01-10, Ohio State University, Department of Economics. [Downloadable!]
  10. Hege, Ulrich & Lovo, Stefano & Slovin, Myron & Sushka, Marie, 2006. "Equity and cash in intercorporate asset sales : theory and evidence," Les Cahiers de Recherche 859, HEC Paris. [Downloadable!]
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  11. Peter-J. Jost & Matthias Kräkel, 2004. "Preemptive Behavior in Sequential-Move Tournaments with Heterogeneous Agents," Bonn Econ Discussion Papers bgse21_2004, University of Bonn, Germany. [Downloadable!]
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  12. Bhagat, Sanjai & Dong, Ming & Hirsheifer, David & Noah, Noah, 2004. "Do Tender Offers Create Value? New Methods and Evidence," Working Paper Series 2004-4, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  13. Martynova, M. & Renneboog, L.D.R., 2008. "What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems or the Means of Payment?," Discussion Paper 2008-66, Tilburg University, Center for Economic Research. [Downloadable!]
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  14. Bessière, Véronique, 1999. "Offres publiques, pouvoir de négociation et partage des synergies," Accepted Papers Series 1999-1, Montpellier University, Center for Research in Finance. [Downloadable!]
  15. Bessière, Véronique, 1999. "Tender offers and gains division : an analysis of the bidder’s bargaining power," Accepted Papers Series 1999-1, Montpellier University, Center for Research in Finance. [Downloadable!]
  16. Mueller, Holger M & Panunzi, Fausto, 2003. "Tender Offers and Leverage," CEPR Discussion Papers 3964, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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