The Optimal Strategy of the Initial Bidder in Takeover Contests: Theory and Empirical Evidence
AbstractThis paper investigates the optimal bidding strategy for the initial bidder in takeover contests. In the theoretical model, the initial bidder has the choice between making a low or a high preemtive initial bid. Both types of bids can lead to a competitive auction process among bidders, and both information and bidding costs are included in the analysis. Optimal strategies are specified following the Perfect Bayesian Equilibrium. The model predicts notably that the optimal strategy for the initial bidder is make a high preemptive initial bid. This strategy deters potential bidders to compete for the same target. The empirical implications of the theoritical model are then examined on US data over the period 1990-1995. Among other results, the relation between the level of bid premiums and the degree of competition is found to be dependent on the type of offer, i.e. hostile or friendly.
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Bibliographic InfoPaper provided by Ecole des Hautes Etudes Commerciales, Universite de Geneve- in its series Papers with number 2000.04.
Length: 26 pages
Date of creation: 2000
Date of revision:
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Postal: Suisse; Ecole des Hautes Etudes Commerciales, Universite de Geneve, faculte des SES. 102 Bb. Carl-Vogt CH - 1211 Geneve 4, Suisse
Phone: (+ 41 22) 705-8263
Fax: (+ 41 22) 705-8293
Web page: http://www.unige.ch/gsem/
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BIDDING ; TAKEOVERS;
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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