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Ownership Structure, Potential Competition, and the Free-Rider Problem in Tender Offers

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  • Ferguson, Michael F

Abstract

Bagnoli and Lipman (1988) have shown that ownership structure is a significant determinant of the division of the gains in tender offers. This article extends their model to allow for potential competition and for the bidder to acquire a toehold. We show that for some optimal bids, the number of shares expected to be tendered is "less" than the number required for control. Moreover, announcement day returns are predicted to vary cross-sectionally as they reflect both the degree to which the bid is anticipated and the bargaining power of the target's shareholders. We show that "free-rider" type results in which the target's shareholders capture all of the gains are due to extreme modeling assumptions. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Ferguson, Michael F, 1994. "Ownership Structure, Potential Competition, and the Free-Rider Problem in Tender Offers," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 35-62, April.
    • Handle: RePEc:oup:jleorg:v:10:y:1994:i:1:p:35-62
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    3. Frank Stähler, 2014. "Partial ownership and cross-border mergers," Journal of Economics, Springer, vol. 111(3), pages 209-237, April.
    4. Basu, Nilanjan & Paeglis, Imants & Toffanin, Melissa, 2017. "Reading between the blocks," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 294-317.

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