This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target's Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock- holders at a sale of the company." The Delaware courts' preference for auctions follows from two premises. First, a firm's managers should maximize the value of their shareholders' investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target's board should conduct an auction when at least two firms would bid sums that are nontrivially above the target's prebid market price.
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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number
91jleo.
Length: 27 pages Date of creation: 1991 Date of revision:
09 Jun 1998 Publication status: Published in Journal of Law, Economics and Organization, 7:1, Spring 1991, pages 27-53. Handle: RePEc:pcc:pccumd:91jleo
Contact details of provider: Postal: Economics Department, University of Maryland, College Park, MD 20742-7211 Phone: (202) 318-0520 Fax: (202) 318-0520 Web page: http://www.cramton.umd.edu
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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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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.)
Jeremy I. Bulow & Paul D. Klemperer, 2007.
"When are Auctions Best?,"
NBER Working Papers
13268, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Jeremy Bulow & Paul Klemperer, 2007.
"When are Auctions Best?,"
Economics Papers
2007-W03, Economics Group, Nuffield College, University of Oxford.
[Downloadable!]
Bulow, Jeremy I. & Klemperer, Paul D., 2007.
"When Are Auctions Best?,"
Research Papers
1973, Stanford University, Graduate School of Business.
[Downloadable!]