Bidder Asymmetry in Takeover Contests: The Role of Deal Protection Devices
AbstractWe analyze how a takeover contest should optimally be designed. Our key assumption is that not all bidders are equally well informed about a target's value. We present a three-stage sequential procedure which is optimal in such a setting. In this procedure, the target first offers an exclusive deal to a better informed bidder, without considering a less well informed bidder. If rejected, the target may offer an exclusive deal to the less well informed bidder and ignore the better informed bidder; or it may encourage every bidder to participate in a modified first-price auction. If the sequential procedure is used, increased bidder asymmetry is beneficial for target shareholders. We also find that target shareholders benefit if bidders are trade buyers and not financial buyers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0311011.
Date of creation: 25 Nov 2003
Date of revision:
Note: Type of Document - pdf; prepared on WinXP; to print on any;
Contact details of provider:
Web page: http://188.8.131.52
Takeovers; asymmetric information; lock-ups; termination fees; poison pills; bidder exclusivity;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-30 (All new papers)
- NEP-CFN-2003-11-30 (Corporate Finance)
- NEP-IND-2003-11-30 (Industrial Organization)
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 Bulow & Ming Huang & Paul Klemperer, 1999.
"Toeholds and Takeovers,"
Journal of Political Economy,
University of Chicago Press, vol. 107(3), pages 427-454, June.
- Paul Klemperer & Jeremy Bulow, 1998. "Toeholds and Takeovers," Economics Series Working Papers 1998-W04, University of Oxford, Department of Economics.
- Bulow, Jeremy I & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1996. "Toeholds and Takeovers," Finance 9608001, EconWPA.
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA.
- Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
- Rajdeep Singh, 1995.
"Takeover Bidding with Toeholds: The Case of the Owner's Curse,"
- Singh, Rajdeep, 1998. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 679-704.
- Matthew Rhodes-Kropf & S. Viswanathan, 2000. "Corporate Reorganizations and Non-Cash Auctions," Journal of Finance, American Finance Association, vol. 55(4), pages 1807-1854, 08.
- Berkovitch, Elazar & Khanna, Naveen, 1990. " How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers," Journal of Finance, American Finance Association, vol. 45(1), pages 137-56, March.
- Officer, Micah S., 2003. "Termination fees in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 69(3), pages 431-467, September.
- Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
- Israel, Ronen, 1991. " Capital Structure and the Market for Corporate Control: The Defensive Role of Debt Financing," Journal of Finance, American Finance Association, vol. 46(4), pages 1391-1409, September.
- Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
- Estelle Cantillon, 2000.
"The Effect of Bidders' Asymmetries on Expected Revenue in Auctions,"
Cowles Foundation Discussion Papers
1279, Cowles Foundation for Research in Economics, Yale University.
- Cantillon, Estelle, 2008. "The effect of bidders' asymmetries on expected revenue in auctions," Games and Economic Behavior, Elsevier, vol. 62(1), pages 1-25, January.
- Estelle Cantillon, 2008. "The effect of bidders' asymmetries on expected revenue in auctions," ULB Institutional Repository 2013/9001, ULB -- Universite Libre de Bruxelles.
- Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
- Lee, D Scott, 1992. " Management Buyout Proposals and Inside Information," Journal of Finance, American Finance Association, vol. 47(3), pages 1061-79, July.
- Fibich, Gadi & Gavious, Arieh & Sela, Aner, 2004. "Revenue equivalence in asymmetric auctions," Journal of Economic Theory, Elsevier, vol. 115(2), pages 309-321, April.
- Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
- Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
- Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.