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Takeover Contests with Asymmetric Bidders

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  • Paul Povel
  • Rajdeep Singh

Abstract

Target firms often face bidders that are not equally well informed, which reduces competition, because bidders with less information fear the winner's curse more. We analyze how targets should be sold in this situation. We show that a sequential procedure can extract the highest possible transaction price. The target first offers an exclusive deal to a better-informed bidder, without considering a less well-informed bidder. If rejected, the target offers either an exclusive deal to the less well-informed bidder, or a modified first-price auction. Deal protection devices can be used to enhance a target's commitment to the procedure. (JEL G34, K22, D44) Copyright 2006, Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 19 (2006)
Issue (Month): 4 ()
Pages: 1399-1431

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Handle: RePEc:oup:rfinst:v:19:y:2006:i:4:p:1399-1431

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Cited by:
  1. Banal-Estanol, Albert & Heidhues, Paul & Nitsche, Rainer & Seldeslachts, Jo, 2009. "Screening and Merger Activity," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 270, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Fidrmuc, Jana P. & Roosenboom, Peter & Paap, Richard & Teunissen, Tim, 2012. "One size does not fit all: Selling firms to private equity versus strategic acquirers," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 828-848.
  3. Loyola, Gino, 2012. "Auctions vs. negotiations in takeovers with initial stakes," Finance Research Letters, Elsevier, vol. 9(3), pages 111-120.
  4. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 203-216.
  5. Edmund Mantell, 2013. "Rational Reserve Pricing in Sequential Auctions," Atlantic Economic Journal, International Atlantic Economic Society, vol. 41(2), pages 149-159, June.
  6. Gino Loyola, 2008. "Optimal takeover contests with toeholds," Economics Working Papers we083217, Universidad Carlos III, Departamento de Economía.
  7. Ahern, Kenneth R., 2012. "Bargaining power and industry dependence in mergers," Journal of Financial Economics, Elsevier, vol. 103(3), pages 530-550.
  8. S. Rosenkranz & G.U. Weitzel, 2007. "Bargaining in Mergers and Termination Fees," Working Papers 07-06, Utrecht School of Economics.
  9. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
  10. Uysal, Vahap B. & Kedia, Simi & Panchapagesan, Venkatesh, 2008. "Geography and acquirer returns," Journal of Financial Intermediation, Elsevier, vol. 17(2), pages 256-275, April.
  11. Calcagno, Riccardo & Falconieri, Sonia, 2014. "Competition and dynamics of takeover contests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 36-56.
  12. : Jana P. Fidrmuc & Peter Roosenboom & Richard Paap & Tim Teunissen, 2012. "One size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers," Working Papers wpn12-02, Warwick Business School, Finance Group.

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