Using Auction Theory to Inform Takeover Regulation
AbstractThis paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target's Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock- holders at a sale of the company." The Delaware courts' preference for auctions follows from two premises. First, a firm's managers should maximize the value of their shareholders' investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target's board should conduct an auction when at least two firms would bid sums that are nontrivially above the target's prebid market price.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Journal of Law, Economics and Organization.
Volume (Year): 7 (1991)
Issue (Month): 1 (Spring)
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Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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Other versions of this item:
- Peter Cramton & Alan Schwartz, 1991. "Using Auction Theory to Inform Takeover Regulation," Papers of Peter Cramton 91jleo, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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