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Takeover Contests, Toeholds and Deterrence

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Author Info

  • David Ettinger

Abstract

We consider a setting in which two potential buyers, one with a prior toehold and one without, compete in a takeover modeled as an ascending auction with participating costs. The toeholder is more aggressive during the takeover process because she is also a seller of her own shares. The non-toeholder anticipates this extra-aggressiveness of the toeholder. Thus, he is deterred from participating unless he has a high valuation for the target company. This leads to large inefficiency losses. For many configurations, expected target returns are first increasing then decreasing in the size of the toehold. Copyright � The editors of the "Scandinavian Journal of Economics" 2009 .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 111 (2009)
Issue (Month): 1 (03)
Pages: 103-124

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Handle: RePEc:bla:scandj:v:111:y:2009:i:1:p:103-124

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Web: http://www.blackwellpublishing.com/subs.asp?ref=0347-0520

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Cited by:
  1. Taras Banakh & Pavel Trisch, 2012. "Toehold Purchase Problem: A comparative analysis of two strategies," Papers 1204.2065, arXiv.org, revised Aug 2013.

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