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Greenmail, White Knights, and Shareholders' Interest

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  • Andrei Shleifer
  • Robert W. Vishny

Abstract

This article develops a model in which greenmail and other forms of management resistance to takeovers can benefit shareholders. In particular, discouraging some potential acquirers may increase shareholder wealth because it encourages others to pursue a combination with the target. This occurs because the number of competing acquirers is reduced and because resistance can signal that the target does not have access to a "white knight." This signalling effect may explain why share prices decline after management resists a takeover, even when such resistance is value-maximizing in the long run.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 17 (1986)
Issue (Month): 3 (Autumn)
Pages: 293-309

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Handle: RePEc:rje:randje:v:17:y:1986:i:autumn:p:293-309

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Cited by:
  1. Sercu, Piet & Van Hulle, Cynthia, 1995. "Financing instruments, security design, and the efficiency of takeovers: A note," International Review of Law and Economics, Elsevier, vol. 15(4), pages 373-393, December.
  2. Sercu, P. & Van Hulle, C., 1995. "On the structure of take-over models, and insider-outsider conflicts in negotiated take-overs," Journal of Banking & Finance, Elsevier, vol. 19(1), pages 11-44, April.
  3. Rose, Caspar, 2005. "Takeover Defenses' Influence on Managerial Incentives," International Review of Law and Economics, Elsevier, vol. 25(4), pages 556-577, December.
  4. repec:fth:calaec:10-00 is not listed on IDEAS
  5. Rose, Caspar, 2002. "Impact of Takeover Defenses on Managerial Incentives," Working Papers 2002-5, Copenhagen Business School, Department of Finance.
  6. Lambrecht, Bart M., 2004. "The timing and terms of mergers motivated by economies of scale," Journal of Financial Economics, Elsevier, vol. 72(1), pages 41-62, April.
  7. Bates, Thomas W. & Lemmon, Michael L., 2003. "Breaking up is hard to do? An analysis of termination fee provisions and merger outcomes," Journal of Financial Economics, Elsevier, vol. 69(3), pages 469-504, September.
  8. Sarig, Oded H. & Talmor, Eli, 1997. "In defense of defensive measures," Journal of Corporate Finance, Elsevier, vol. 3(3), pages 277-297, June.

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