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Mergers by Partial Acquisition

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Author Info
Lindqvist, Tobias (The Research Institute of Industrial Economics)

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Abstract

This paper evaluates partial acquisition strategies. The model allows for buying a share of a firm before the actual acquisition takes place. Holding a share in a competing firm before the acquisition of another firm, outsider-toehold, eliminates the insiders' dilemma, i.e. profitable mergers do not occur. This strategy may thus be more profitable for a buyer than acquiring entire firms at once. Furthermore, the insiders' dilemma arises from the assumption of a positive externality on the outsider firm and acquiring an outsider-toehold is thus a signal of an anti-competitive merger.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 630.

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Length: 23 pages
Date of creation: 20 Oct 2004
Date of revision:
Handle: RePEc:hhs:iuiwop:0630

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
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Related research
Keywords: Acquisition; Antitrust; Insiders' Dilemma; Mergers; Toeholds;

Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
  2. Jennings, Robert H & Mazzeo, Michael A, 1993. "Competing Bids, Target Management Resistance, and the Structure of Takeover Bids," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(4), pages 883-909. [Downloadable!] (restricted)
  3. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May. [Downloadable!] (restricted)
  4. Lindqvist, T. & Stennek, J., 2001. "The Insider's Dilemma: An Experiment on Merger Formation," Research Institute of Industrial Economics Working Papers 563, Research Institute of Industrial Economics (IFN).
    Other versions:
  5. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring. [Downloadable!] (restricted)
  6. Szidarovszky, F. & Yakowitz, S., 1982. "Contributions to Cournot oligopoly theory," Journal of Economic Theory, Elsevier, vol. 28(1), pages 51-70, October. [Downloadable!] (restricted)
  7. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June. [Downloadable!] (restricted)
    Other versions:
  8. Ravid, S. Abraham & Spiegel, Matthew, 1999. "Toehold strategies, takeover laws and rival bidders," Journal of Banking & Finance, Elsevier, vol. 23(8), pages 1219-1242, August. [Downloadable!] (restricted)
  9. Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(4), pages 841-82.
  10. Tobias Lindqvist & Johan Stennek, 2005. "The Insiders’ Dilemma: An Experiment on Merger Formation," Experimental Economics, Springer, vol. 8(3), pages 267-284, September. [Downloadable!] (restricted)
  11. Matthew I. Spiegel & S. Abraham Ravid, 1999. "Toehold Strategies, Takeover Laws And Rival Bidders," Yale School of Management Working Papers ysm112, Yale School of Management. [Downloadable!]
  12. Stulz, Rene M & Walkling, Ralph A & Song, Moon H, 1990. " The Distribution of Target Ownership and the Division of Gains in Successful Takeovers," Journal of Finance, American Finance Association, vol. 45(3), pages 817-33, July. [Downloadable!] (restricted)
  13. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March. [Downloadable!] (restricted)
  14. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  15. Mark Bagnoli, Barton L. Lipman, 1988. "Successful Takeovers without Exclusion," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(1), pages 89-110. [Downloadable!] (restricted)
  16. Hogfeldt, Peter & Hogholm, Kenneth, 2000. "A law and finance theory of strategic blocking and preemptive bidding in takeovers," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 403-425, December. [Downloadable!] (restricted)
  17. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  18. Horn, Henrik & Persson, Lars, 1996. "Endogenous Mergers in Concentrated Markets," CEPR Discussion Papers 1544, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lindqvist, Tobias, 2005. "Acquisiton Strategies: Empirical Evidence of Outsider-Toeholds," Working Paper Series 634, Research Institute of Industrial Economics. [Downloadable!]
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