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Takeover Contests with Asymmetric Bidders

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Author Info
Paul Povel
Rajdeep Singh

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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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File URL: http://hdl.handle.net/10.1093/rfs/hhj034
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Publisher Info
Article provided by Oxford University Press for 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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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Utz Weitzel & Stephanie Rosenkranz, 2007. "Bargaining in Mergers and Termination Fees," Working Papers 07-06, Utrecht School of Economics. [Downloadable!]
    Other versions:
  2. Albert Banal-Estanol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2009. "Screening and Merger Activity," Discussion Papers 270, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  3. Gino Loyola, 2008. "Optimal takeover contests with toeholds," Economics Working Papers we083217, Universidad Carlos III, Departamento de Economía. [Downloadable!]
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