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Takeover Contests, Toeholds and Deterrence

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Author Info
David Ettinger

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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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2008.01556.x
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Publisher Info
Article provided by Blackwell Publishing 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://www.blackwellpublishing.com/journal.asp?ref=0347-0520

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This page was last updated on 2009-11-22.

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