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How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers

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  • Berkovitch, Elazar
  • Khanna, Naveen
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    Abstract

    This paper shows that target shareholders can be made better-off through the use of certain types of defensive strategies that reduce the value of the target by different amounts for different bidders. In many cases, simply the threat of such strategies can make target shareholders better-off. Therefore, empirical tests based on stock price reactions at the adoption of defensive strategies may be underestimating the effect of such strategies. The paper also identifies the necessary characteristics that make these strategies effective and shows that many observed defenses possess similar properties. Copyright 1990 by American Finance Association.

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    Bibliographic Info

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

    Volume (Year): 45 (1990)
    Issue (Month): 1 (March)
    Pages: 137-56

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    Handle: RePEc:bla:jfinan:v:45:y:1990:i:1:p:137-56

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    Cited by:
    1. James M. Mahoney & Chamu Sundaramurthy & Joseph T. Mahoney, 1995. "The differential impact on stockholder wealth of various antitakeover provisions," Research Paper 9512, Federal Reserve Bank of New York.
    2. Stephanie Rosenkranz & Utz Weitzel, 2005. "Bargaining in Mergers: The Role of Outside Options and Termination Provisions," Working Papers 05-32, Utrecht School of Economics.
    3. S. Rosenkranz & G.U. Weitzel, 2007. "Bargaining in Mergers and Termination Fees," Working Papers 07-06, Utrecht School of Economics.
    4. Paul Povel & Rajdeep Singh, 2003. "Bidder Asymmetry in Takeover Contests: The Role of Deal Protection Devices," Finance 0311011, EconWPA.

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