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Toeholds, rejected offers, and bidder gains: Do rebuffed bidders put targets in play to profit from their toeholds?

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  • Carroll, Carolyn
  • Griffith, John M.
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    Abstract

    Previous research shows that on average acquirers who buy shares in the pre-bid market gain because the average price of the acquisition is reduced. This study addresses a different question, one that relies on the withdrawal of the bidder rather than the successful completion of the acquisition. Do some firms with toeholds bid for the target to entice other bidders into the contest for the gain that they make when they sell their shares in the target to another bidder? This paper argues that holding a toehold makes hostile bidders more likely to withdraw from the contest if another bidder enters. The evidence is consistent with our hypothesis: hostile bidders that have a toehold, on average, earn significant abnormal returns of 4.98%, with a mean toehold of 13.81%. Those without a toehold, on average, earn a significantly lower 0.06% return.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 2 (May)
    Pages: 214-221

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:2:p:214-221

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Hostile takeovers Toehold;

    References

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