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Value of Information and Fairness Opinions in Takeovers

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  • Mehmet Ekmekci
  • Nenad Kos
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    Abstract

    We analyze the value of information in the market for corporate control. The raider and the shareholders are privately and imperfectly informed about the post-takeover value of the firm. We show that public information provision reduces the dispersion of the shareholders’ beliefs resulting in a transfer of surplus from the raider to the shareholders. What is more, if the raider is privately informed all his private information is revealed through the price offer, hence he prefers not to acquire private information, provided that the shareholders do not engage in information acquisition. The target shareholders, on the other hand, have incentives to acquire information—solicit a fairness opinion—after the raider makes a price offer. However, when both parties have access to an information market, they both have incentives to acquire information. Keywords: takeovers, fairness opinion, tender offers, lemons problem, large shareholder. JEL Classification Numbers: D82, G34.

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    Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 510.

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    Date of creation: 2014
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    Handle: RePEc:igi:igierp:510

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    1. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
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    9. Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(5), pages 949 - 987.
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