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Competition and dynamics of takeover contests

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  • Riccardo Calcagno
  • Sonia Falconieri

Abstract

This paper investigates the effect of potential competition on takeovers which we model as a bargaining game with alternating offers where calling an auction represents an outside option for each bidder at each stage of the game. The model aims to answer three main questions: who wins the takeover? when? and how? Our results are able to explain why the takeover premium resulting from a negotiated deal is not significantly different from that resulting from an auction, and why tender offers are rarely observed in reality. Furthermore, the model allows us to draw conclusions on how other dimensions of the takeover process, such as termination fees, target resistance and tender offer costs, affect its dynamics and outcome.

Suggested Citation

  • Riccardo Calcagno & Sonia Falconieri, 2013. "Competition and dynamics of takeover contests," Carlo Alberto Notebooks 296, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:296
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    File URL: https://www.carloalberto.org/wp-content/uploads/2018/11/no.296.pdf
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    References listed on IDEAS

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    1. Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 841-882.
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    1. repec:ipg:wpaper:2014-604 is not listed on IDEAS
    2. repec:ipg:wpaper:2014-531 is not listed on IDEAS

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    More about this item

    Keywords

    takeover negotiations; auctions; bargaining; outside option.;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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