White Knights and the Corporate Governance of Hostile Takeovers
AbstractWe analyze the dynamics of takeover contests where hostile raiders compete against white knights involved by a lead blockholder of the target firm (the incumbent). We assume that the incumbent has the power to bargain with the potential bidders to set a minimum takeover price. We characterize the conditions under which a white knight wins the takeover contest despite the smaller value of its synergies as compared to those of the hostile bidder. The paper provides a new explanation for the reason why we observe so few hostile takeovers in reality; moreover, it sheds some light on the effectiveness of white knights as an anti-takeover device and the role played by leading minority blockholders in the market for corporate control.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-118/2.
Date of creation: 15 Dec 2008
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Hostile takeovers; white knights; Nash bargaining;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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