Optimal takeover contests with toeholds
AbstractThis paper characterizes how a target firm should be sold when the possible buyers (bidders) have prior stakes in its ownership (toeholds). We find that the optimal mechanism needs to be implemented by a non-standard auction which imposes a bias against bidders with high toeholds. This discriminatory procedure is such that the target´s average sale price is increasing in both the size of the common toehold and the degree of asymmetry in these stakes. It is also shown that a simple mechanism of sequential negotiation replicates the main properties of the optimal procedure and yields a higher average selling price than the standard auctions commonly used in takeover battles.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we083217.
Date of creation: Feb 2008
Date of revision:
Optimal auctions; Takeovers; Toeholds; Asymmetric auctions;
Other versions of this item:
- Loyola, Gino, . "Optimal takeover contests with toeholds," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2729, Universidad Carlos III de Madrid.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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